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TABLE OF CONTENTS M. Tax on General Professional

CONSTITUTIONAL LAW ..............................2 Partnerships ............................................. 41
A. Basic Principles of Constitutional Law N. Corporations Exempt from Income Tax
2 41
B. Bill of Rights ...................................... 4 O. Income Tax on Domestic Corporations
C. Composition and Powers of the 41
Government Organs .................................. 5 P. International carriers ........................ 43
D. Judicial Review ................................. 7 TAXATION LAW 2....................................... 44
E. Supervision of Courts ........................ 8 VALUE-ADDED TAX ................................... 44
F. Powers of the Supreme Court ........... 8 A. VAT on Sale of Properties ............... 45
G. Qualifications, Disqualifications and B. VAT on Services .............................. 47
Selection of Certain Public Officers ........... 9 C. VAT Exempt Transactions ............... 48
H. Process of Legislation ..................... 10 D. Refund or Tax Credit of Excess Input
I. Natural Resources .......................... 12 Tax 49
J. Amendment and Revision of the DONOR’S TAX ............................................ 50
Constitution .............................................. 13 TAX REMEDIES .......................................... 53
INTERNATIONAL LAW ...............................14
A. Sources Of Obligation In International
Law 14
B. Relationship Between International
and National Law ..................................... 15
LABOR LAW ...............................................18
TAXATION LAW 1 .......................................24
GENERAL PRINCIPLES .............................24
A. Nature and Characteristics of Taxation
24
B. Inherent Limitations ......................... 25
C. Constitutional Limitations ................ 25
D. Requisites of a Valid Tax ................ 28
E. Kinds of Taxes ................................ 28
F. Double Taxation .............................. 29
G. Escape from Taxation (Tax Avoidance
v. Tax Evasion) ........................................ 30
H. Tax Exemption ................................ 30
I. Compensation and Set-off .............. 31
J. Construction and Interpretation of Tax
Laws 31
K. Taxpayer’s Suit ............................... 32
L. Powers and Functions of the CIR ... 32
INCOME TAX ...............................................32
A. Taxable Income............................... 32
B. Fringe Benefits ................................ 32
C. De Minimis Benefits ........................ 33
D. Exclusions from Gross Income ....... 33
E. Deductions ...................................... 34
F. Income Tax on Individuals .............. 37
G. Income from Dealings in Property ... 39
H. Passive Investment Income ............ 39
I. Annuities, Proceeds from Life
Insurance or Other Types of Insurance ... 40
J. Prizes and Awards .......................... 40
K. Pensions, Retirement Benefit, or
Separation Pay ........................................ 40
L. Tax on Co-ownerships .................... 40
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POLITICAL LAW
PRE-WEEK

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CONSTITUTIONAL LAW
A. Basic Principles of
Constitutional Law
1. Distinguish between imperium and
dominium.
Answer: Imperium is the authority possessed
by the state embraced in the concept of
sovereignty while dominium refers to the
capacity of the state to own or acquire property
including those lands held by the state in its
proprietary capacity.
2. Cite instances when the state will have
no power and jurisdiction over persons
and things within its territory.
Answer: The state cannot exercise power and
jurisdiction over the following persons and
things within its territory:
1. Foreign heads of state, diplomatic
representatives, and consuls to a certain
degree;
2. Foreign state property, including
embassies, consulates and public vessels
in non-commercial activities;
3. Acts of state;
4. Foreign merchant vessels exercising right
of innocent passage or involuntary entry,
such as arrival under stress;
5. Foreign armies passing through or
stationed in its territory with its permission;
and
6. Such other persons or property, including
organizations like the United Nations,
World Health Organization, Asian
Development Bank, over which it may, by
agreement, waive jurisdiction.
3. What is extraterritorial jurisdiction?
Answer: The extraterritorial jurisdiction is the
authority of the state to exercise power and
jurisdiction beyond and outside its territory
under the following circumstances:
1. When it asserts its personal jurisdiction
over its nationals abroad, or the exercise of
its rights or punish certain offenses
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POLITICAL LAW
committed outside its territory against its
national interests even if the offenders are
non-resident aliens;
2. When the local state waives its jurisdiction
over persons and things within its territory,
such as when a foreign army is stationed
therein remains under the jurisdiction of the
sending state;
3. When it establishes a colonial protectorate,
or administers a trust territory or occupies
an enemy territory in the course of war;
4. When it enjoys easements or servitudes
(i.e., easement of innocent passage,
freedom of over flight)
5. When it exercises limited jurisdiction over
the contiguous zone; and
6. When it exercises the principle of
extraterritoriality.
4. What is the concept of auto limitation of
sovereignty?
Answer: By their inherent nature, treaties
really limit or restrict the absoluteness of
sovereignty. By their voluntary act, nations may
surrender some aspects of their state power in
exchange for greater benefits granted by or
derived from a convention or pact. [Tanada v.
Angara, 272 SCRA 18, 66]
The sovereignty of the State therefore cannot
in fact and in reality, be considered absolute.
Certain restrictions enter into the picture: (1)
limitations imposed by the very nature of
membership in the family of nations and (2)
limitations imposed by treaty stipulations [Id.,
67]
5. Discuss the separation of powers.
Answer: The principle of separation of powers
and its concepts of autonomy and
independence stem from the notion that the
powers of government must be divided to avoid
concentration of these powers in any one
branch; the division, it is hoped, would avoid
any single branch from lording its power over
the other branches or the citizenry. [Belgica v.
Ochoa, G.R. No. 208566]
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6. What is the purpose of separation of
powers?
Answer: The principle of separation of powers
and its concepts of autonomy and
independence stem from the notion that the
powers of government must be divided to avoid
concentration of these powers in any one
branch; the division, it is hoped, would avoid
any single branch from lording its power over
the other branches or the citizenry. [Belgica v.
Ochoa, G.R. No. 208566]
7. What is the principle of checks and
balances?
Answer: This is a mechanism by which one
department is allowed to resist encroachments
upon its prerogatives or to rectify mistakes or
excesses committed by the other departments.
[NACHURA, Outline Reviewer in Political Law,
p. 97]
8. What is the principle of the blending of
powers?
Answer: These are instances when powers
are not confined exclusively within one
department but are assigned to or shared by
several departments. [NACHURA, Outline
Reviewer in Political Law, p. 97]
9. What is police power?
Answer: It is the power of the state to promote
public welfare by restraining and regulating the
use of liberty and property. It is the most
pervasive, the least limitable, and the most
demanding of the three fundamental powers of
the State. The justification is found in the Latin
maxims salus populi est suprema lex (the
welfare of the people is the supreme law) and
sic utere tuo ut alienum non laedas (so use
your property as not to injure the property of
others). As an inherent attribute of sovereignty
which virtually extends to all public needs,
police power grants a wide panoply of
instruments through which the State, as parens
patriae, gives effect to a host of its regulatory
powers. [Gerochi vs. Department of Energy]
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POLITICAL LAW
10. Is there a limit to the State’s police
power?
Answer: Yes, balancing is the essence or the
indispensable means for the attainment of
legitimate aspirations of any democratic
society. There can be no absolute power,
whoever exercise it, for that would be tyranny.
Yet there can neither be absolute liberty, for
that would mean license and anarchy. The
State can deprive persons of life, liberty and
property, provided there is due process of law;
and persons may be classified into classes and
groups, provided everyone is given the equal
protection of the law. [Ichong v. Hernandez,
G.R. No. L-7995]
11. What are the requisites for the valid
exercise of police power?
a. Lawful subject - the power will be
exercised to promote the interests of the
public in general, as distinguished front
hose of a particular class
b. Lawful means - the means employed are
reasonably necessary for the
accomplishment of the purpose and not
unduly oppressive on individuals [Planters
Products v. Fertiphil, G.R. No. 156278]
12. What are the requisites for the valid
exercise of the power of eminent
domain? [PUGJD]
a. the property taken must be private property
b. there must be genuine necessity to take the
private property
c. the taking must be for public use
d. there must be payment of just
compensation
e. the taking must comply with due process of
law [Manapat v. CA]
13. Discuss the public use requirement for
the exercise for the exercise of eminent
domain.
Answer: Public use has encompassed public
interest, benefit, and convenience. It is
essential that the element of public use be
maintained throughout the expropriation
proceedings. (explained in the case of Mactan
International Airport v. Lozada) This is an
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indispensable element. Without it, private
property would be denied due process of law
and the expropriation would violate property
rights. Public use is the fundamental basis for
the action for expropriation.
According to Metropolitan Water District v De
Los Angeles: The very moment that it appears
at any stage of the proceedings that the
expropriation is not for a public use, the action
must necessarily fail and should be dismissed
simply because it cannot be maintained at all
except when the expropriation is for some
public use. That must be true even during the
pendency of the appeal or at any other stage of
the proceedings. [Republic v. Heirs of Borbon,
G.R. No. 165854]
14. What are the requisites for the valid
exercise of the power of taxation? [ P I N G S ] statutes that infringe upon freedom of speech,
a. Situs of taxation - it may be exercised only
over subjects within the Phil. territory
b. Public purpose
c. Must recognize international comity in
taxing foreign subjects
d. Non-delegability - may only be exercised
by Congress, except in cases of valid
delegation
e. Government is exempt from taxation
B. Bill of Rights
1. What are the 2 aspects of due process?
Answer: Due process of law has two aspects:
substantive and procedural. In order that a
particular act may not be impugned as violative
of the due process clause, there must be
compliance with both the substantive and the
procedural requirements thereof. Substantive
due process refers to the intrinsic validity of a
law that interferes with the rights of a person to
his property. Procedural due process, on the
other hand, means compliance with the
procedures or steps, even periods, prescribed
by the statute, in conformity with the standard
of fair play and without arbitrariness on the part
of those who are called upon to administer it.
[Alliance for the Family Foundation v. Garin,
G.R. No. 217872]
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POLITICAL LAW
2. What is the void for vagueness
doctrine? What is the overbreadth
doctrine? Distinguish.
Answer: The overbreadth doctrine decrees
that a governmental purpose may not be
achieved by means which sweep
unnecessarily broadly and thereby invade the
area of protected freedoms. On the other hand,
the void-for-vagueness doctrine states that a
statute which either forbids or requires the
doing of an act in terms so vague that men of
common intelligence must necessarily guess at
its meaning and differ as to its application,
violates the first essential of due process of
law. [Separate Opinion of Mr. Justice Vicente
V. Mendoza in Estrada v. Sandiganbayan, 421
Phil. 290, 430, November 19, 2001] The
doctrine of overbreadth applies generally to
while the "void-for-vagueness" doctrine applies
to criminal laws, not merely those that regulate
speech or other fundamental constitutional
rights. [Romualdez v. Sandiganbayan, G.R.
No. 152259]
3. What are the requisites of a reasonable
classification that does not infringe
upon the equal protection clause? [ S G C A ]
Answer: The classification should be based on
substantial distinctions which make for real
differences; it must be germane to the purpose
of the law; it must not be limited to existing
conditions only; and it must apply equally to
each member of the class. This Court has held
that the standard is satisfied if the classification
or distinction is based on a reasonable
foundation or rational basis and is not palpably
arbitrary. [Garcia v. Drilon, G.R. No. 179267]
4. Does equal protection require
uniformity?
Answer: No, the equal protection clause does
not require the universal application of the laws
to all persons or things without distinction.
What it requires is simply equality among
equals as determined according to a valid
classification. If a law neither burdens a
fundamental right nor targets a suspect class,
the classification stands as long as it bears a
rational relationship to some legitimate
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government end. It does not preclude
classification of individuals who may be
accorded different treatment under the law as
long as the classification is reasonable and not
arbitrary. The mere fact that the legislative
classification may result in actual inequality is
not violative of the right to equal protection.
[Villanueva v. JBC, G.R. No. 211833]
5. Differentiate the rational basis test,
heightened scrutiny test, and strict
scrutiny test:
Answer: Under the rational basis test, laws or
ordinances affecting the life, liberty, or property
of persons are generally considered valid so
long as it rationally advances a legitimate
government interest. Under the heightened
scrutiny test, the law or ordinance will be
deemed valid only after the government
interest has been extensively examined, and
the available less restrictive means of
furthering it have been considered. Under the
strict scrutiny test, there must be a compelling
government interest, and there must be no
other less restrictive means to achieve it. Each
test depends on the right that is affected by the
government act affecting the person's life,
liberty, or property. [G.R. No. 202897, J.
Leonen, Separate Concurring Opinion]
6. Is a corporation entitled to the right
against unreasonable searches and
seizures?
Answer: Yes. A corporation is entitled to
immunity, under the 4th Amendment, against
unreasonable searches and seizures. A
corporation is, after all, an association of
individuals under an assumed name and with a
distinct legal entity. In organizing itself as a
collective body it waives no constitutional
immunities appropriate to such body. [Bache
and Co. v. Ruiz, G.R. No. L-32409]
7. What is the difference between probable
cause for issuance of a search warrant
and probable cause for issuance of a
warrant of arrest?
Answer: For search warrant – such facts and
circumstances which would lead a reasonably
discreet and prudent man to believe that an
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offense has been committed and the objects
sought in connection with the offense are in the
place sought to be searched. [Burgos v. Chief
of Staff, G.R. No. L-64261]
For warrant of arrest – such facts and
circumstances which would lead a reasonably
discreet and prudent man to believe that an
offense has been committed by the person
sought to be arrested. [Webb v. De Leon, G.R.
No. 121234]
C. Composition and Powers of
the Government Organs
1. What is the composition of the Senate of
the Philippines?
Answer: The Senate shall be composed of 24
Senators who shall be elected at large by the
qualified voters of the Philippines, as may be
provided by law. [Art, VI, Sec. 2, 1987 Const.]
2. What is the prescribed composition of
the House of Representatives?
Answer: The House of Representatives shall
be composed of not more than 250 members
unless otherwise fixed by law, consisting of:
1. District Representatives – not less than 200
members, elected from legislative districts
apportioned among the provinces, cities,
and the Metropolitan Manila area. [Art, VI,
Sec. 5, par. 1, 1987 Const.]
2. Party-list Representatives – shall constitute
20% of the total number of representatives,
elected through a party-list system of
registered national, regional, and sectoral
parties or organizations. [RA 7941, Party-
List System Act]
3. Sectoral Representatives – For three
consecutive terms after the ratification of
this Constitution, one-half of the seats
allocated to party-list representatives shall
be filled, as provided by law, by selection or
election from the labor, peasant, urban
poor, indigenous cultural communities,
women, youth and such other sectors as
may be provided by law, except the
religious sector. [Art. VI, Sec. 5, par. (2),
1987 Const.]
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3. Discuss the scope of legislative power.
Answer: Legislative power is the power to
propose, enact, amend, and repeal statues.
(BERNAS, 1987 Philippine Constitution: A
Commentary, p. 376) It is vested in the
Congress of the Philippines, which shall consist
of a Senate and a House of Representatives,
except to the extent reserved to the people by
the provisions on initiative and referendum.
[Art. VI, Sec. 1, 1987 Const.]
4. What are the limitations of legislative
power?
Answer: Legislative power is subject to:
1. Substantive limitations - which involve the
exercise of the power itself and the
allowable subjects of legislation; and
2. Procedural limitations - which specify the
manner of passing laws. [BERNAS,
Commentary on 1987 Philippine
Constitution, 679]
5. What are some of the substantive
limitations?
Answer: The following are the substantive
limitations under the Constitution:
1. No law shall be passed abridging the
freedom of speech, of expression, or of the
press, or the right of the people peaceably
to assemble and petition the government
for redress of grievances. [Art. III, Sec. 4,
1987 Const.]
2. No law shall be made respecting an
establishment of religion or prohibiting the
free exercise thereof. [Art. III, Sec. 5, 1987
Const.]
3. No law impairing the obligation of contracts
shall be passed. [Art. III, Sec. 10, 1987
Const.]
4. No ex post facto law or bill of attainder shall
be enacted. [Art. III, Sec. 22, 1987 Const.]
5. No law shall be passed authorizing any
transfer of appropriations; however, the
President, the President of the Senate, the
Speaker of the House of Representatives,
the Chief Justice of the Supreme Court,
and the heads of Constitutional
Commissions may, by law, be authorized to
augment any item in the general
appropriations law for their respective
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POLITICAL LAW
offices from savings in other items of their
respective appropriations. [Art. VI, Sec.
25(5), 1987 Const.]
6. No provision or enactment shall be
embraced in the general appropriations bill
unless it relates specifically to some
particular appropriation therein. Any such
provision or enactment shall be limited in its
operation to the appropriation to which it
relates. [Art. VI, Sec. 25(2), 1987 Const.]
7. Prohibition against use of public money or
property for religious purposes. [Art. VI,
Sec. 29(2), 1987 Const.]
8. No law granting any tax exemption shall be
passed without the concurrence of a
majority of all the Members of the
Congress. [Art. VI, Sec. 28(4), 1987 Const.]
9. All money collected on any tax levied for a
special purpose shall be treated as a
special fund and paid out for such purpose
only. [Art. VI, Sec. 29(3), 1987 Const.]
10. Charitable institutions, churches and
parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements
used for religious, charitable, or
educational purposes shall be exempt from
taxation. [Art. VI, Sec. 28(3), 1987 Const.]
11. All revenues and assets of non-stock, non-
profit educational institutions used actually,
directly, and exclusively for educational
purposes shall be exempt from taxes and
duties. [Art. XIV, Sec. 4(3), 1987 Const.]
12. No law shall be passed increasing the
appellate jurisdiction of the Supreme Court
as provided in this Constitution without its
advice and concurrence. [Art. VI, Sec. 30,
1987 Const.]
13. No law granting a title of royalty or nobility
shall be enacted. [Art. VI, Sec. 31, 1987
Const.]
6. What are the procedural limitations?
Answer: The following are the procedural
limitations under the Constitution:
1. Every bill passed by the Congress shall
embrace only one subject, which shall be
expressed in the title thereof. [Art. VI, Sec.
26(1), 1987 Const.]
2. No bill passed by either House shall
become a law unless it has passed three
(3) readings on separate days, and printed
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copies thereof in its final form have been
distributed to its Members three days
before its passage, except when the
President certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. [Art. VI, Sec. 25(4),
1987 Const.]
3. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills
of local application, and private bills shall
originate exclusively in the House of
Representatives, but the Senate may
propose or concur with amendments. [Art.
VI, Sec. 24, 1987 Const.]
7. Enumerate and briefly explain the three
Presidential Powers stated in the
Constitution. [ Arc T Csd ]
Answer:
1. Executive power includes the power to
appoint, remove and control executive
officers. [Art. VII, Sec. 17, 1987 Const.]
2. Treaty making which means the President
may enter into treaties with the
concurrence of at least 2/3 of all members
of the Senate. [Art. VII, Sec. 21, 1987
Const.]
3. Being a commander in chief which enables
him to call out the armed forces to suppress
lawless violence, invasion; suspend the
writ of habeas corpus or declare martial
law. [Art. VII, Sec. 18, 1987 Const.]
8. Distinguish executive power from
administrative power.
Answer: Executive power pertains to the
power to enforce and administer the laws. It
shall be vested in the President of the
Philippines and exercised through the manifold
offices of the executive department. [Art. VII,
Sec. 1, 1987 Const.] On the other hand, the
administrative power refers to the President’s
control over all such executive departments,
bureaus and offices. He shall ensure that laws
are faithfully executed. [Art. VII, Sec. 17, 1987
Const.]
9. What is judicial power?
Answer: Under Art. VIII, Sec. 1(1) of the 1987
Constitution, judicial power is the to settle
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justifiable controversies or dispute involving
rights that are enforceable and demandable
before the courts of justice or the redress of
wrongs for violation of such rights. [Lopez v.
Roxas, G.R. No. L-25716]
10. What is the composition of the Supreme
Court?
Answer:
a. Chief Justice and 14 Associate Justices
b. May sit en banc or in divisions of three, five,
or seven members
c. Vacancy shall be filled within 90 days from
the occurrence thereof
d. Strict Composition: There is but one
Supreme Court whose membership
appointments are permanent [Vargas v.
Rilloraza, G.R No. L-1612 (1948)]
D. Judicial Review
1. What are the requisites of judicial
review? [ P E A D ]
Answer: The requisites of judicial review are:
1. That question must be raised by the proper
party
2. That there must be an actual case or
controversy
3. That the question must be raised at the
earliest possible opportunity
4. That the decision on the constitutional or
legal question must be necessary to the
determination of the case itself. [Dumlao v.
COMELEC, G.R. No. 50245]
2. What is the operative facts doctrine?
Answer: The doctrine of operative facts means
that before a law was declared
unconstitutional, its actual existence must be
taken into account and whatever was done
while the law was in operation should be
recognized as valid. [Rieta v. People, G.R. No.
147817]
3. How did the 1987 Constitution affect the
political question doctrine?
Answer: Art. VIII, Sec. 1 of the 1987
Constitution expanded the scope of judicial
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power to settle actual controversies involving
rights which are legally demandable and
enforceable, and to determine whether or not
there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the
Government.
In Marcos v. Manglapus, the Court held that the
extent of judicial review when political
questions are involved should be limited to a
determination of whether or not there has been
a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of the
official whose act is being questioned. If grave
abuse of discretion is not shown.
E. Supervision of Courts
1. What are the administrative powers of
the Supreme Court over Lower Courts?
Answer:
a. Assign temporarily judges of lower courts
to other stations as public interest may
require;
b. Shall not exceed 6 months without the
consent of the judge concerned;
c. Order a change of venue or place of trial to
avoid a miscarriage of justice;
d. Appoint all officials and employees of the
Judiciary in accordance with the Civil
Service Law;
e. Supervision over all courts and the
personnel thereof;
f. Discipline judges of lower courts or order
their dismissal.
F. Powers of the Supreme Court
1. What are the powers of the Supreme
Court?
Answer: According to the 1987 Constitution,
Art. VIII, Sec. 5, the Supreme Court exercises
the following powers:
1. Exercise jurisdiction over cases affecting
ambassadors, other public ministers and
consuls, and over petitions for certiorari,
prohibition, mandamus, quo warranto, and
habeas corpus.
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2. Review, revise, reverse, modify, or affirm,
on appeal or certiorari, as the law or the
Rules of Court may provide, final
judgments and orders of the lower courts
in:
3. All cases in which the constitutionality or
validity of any treaty, international or
executive agreement, law, presidential
decree, proclamation, order, instruction,
ordinance, or regulation is in question;
4. All cases involving the legality of any tax,
impost, assessment, or toll, or any penalty
imposed in relation thereto;
5. All cases in which the jurisdiction of any
lower court is in issue;
6. All criminal cases in which the penalty
imposed is reclusion perpetua or higher;
7. All cases in which only an error or question
of law is involved;
8. Assign temporarily judges of lower courts
to other stations as public interest may
require. Such temporary assignments shall
not exceed six months without the consent
of the judge concerned.
9. Order a change of venue or place of trial to
avoid a miscarriage of justice.
10. Promulgate rules concerning the protection
and enforcement of constitutional rights,
pleading, practice, and procedure in all
courts; the admission to the practice of law,
the Integrated Bar; and legal assistance to
the underprivileged. Such rules shall
provide a simplified and inexpensive
procedure for the speedy disposition of
cases, shall be uniform for all courts the
same grade, and shall not diminish,
increase or modify substantive rights.
Rules of procedure of special courts and
quasi-judicial bodies shall remain effective
unless disapproved by the Supreme Court.
11. Appoint all officials and employees of the
Judiciary in accordance with the Civil
Service Law [Sec. 5, id.].
The Supreme Court has adopted and
promulgated the Rules of Court for the
protection and enforcement of constitutional
rights, pleadings and practice and procedure in
all courts, and the admission in the practice of
law. Amendments are promulgated through
the Committee on Revision of Rules. The
Court also issues administrative rules and
regulations in the form of court issuances
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posted on the Supreme Court E-Library
website.
G. Qualifications,
Disqualifications and
Selection of Certain Public
Officers
1. What are the qualifications of a 3. Presidential immunity from suit during his
Senator?
Answer: The following are the qualifications of
a senator: [ N A A V R ]
1. Natural-born citizen of the Philippines
2. At least 35 years of age on the day of the
election
3. Able to read and write
4. Registered Voter
5. Resident of the Philippines for not less than
2 years immediately preceding the day of
the election. [Art, VI, Sec. 3, 1987 Const.]
2. How long is a Senator’s term of office?
Answer: The term of office of the Senators
shall be six (6) years and shall commence,
unless otherwise provided by law, at noon on
the 30th day of June next following their
election. No Senator shall serve for more than
two (2) consecutive terms. Voluntary
renunciation of office for any length of time
shall not be considered as an interruption in the
continuity of his service for the full term for
which he was elected. [Art. VI, Sec. 4, 1987
Const.]
3. What are the qualifications required of
the President and Vice-President?
Answer: A person must meet the following
qualifications to be elected President or Vice
President. [ N A A R ]
1. Natural-born citizen of the Philippines
2. At least 40 years of age on the day of the
election
3. Able to read and write; and
4. A resident of the Philippines for a period of
at least ten (10) years immediately
preceding the day of the election. [Art. VII,
Sec. 2, 1987 Const.]
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POLITICAL LAW
4. What are the privileges afforded to the
President and Vice-President?
Answer: The following are their privileges:
1. Official residence for the President; and
2. Salaries of the President and Vice-
President are determined by law and not to
be decreased during his tenure. [Art. VII,
Sec. 6, 1987 Const.]
tenure. [Soliven v. Makasiar, G.R. No.
82585]
4. Executive privilege (Presidential
Communications Privilege) has been
defined as the right of the President and the
high-level executive branch officials to
withhold information from Congress, the
courts, and ultimately, the public. [Senate
v. Ermita]
5. What is the extent of the President’s
immunity from suit?
Answer: The President, like the judges of the
courts and the members of the Legislature,
may not be personally mulcted in civil damages
for the consequences of an act executed in the
performance of his duties.
This principle of non-liability does not mean
that the chief executive may not be personally
sued at all in relation to acts which he claims to
perform as such official. The President is liable
when he acts in a case so plainly outside of his
power and authority that he cannot be said to
have exercised discretion in determining
whether or not he had the right to act.
Also, when the cases filed against the
President are criminal in character. It will be
anomalous to hold that immunity is an
inoculation from liability of unlawful acts and
omissions. The rules is that unlawful acts of
public officials are not acts of the State and the
officer who acts illegally is not acting as such
but stands in the same footing as any other
trespasser. [Estrada v. Desierto, G.R. No.
146710-15]
UP LAW BOC PRE-WEEK POLITICAL LAW

6. What are the qualifications of members d. Must not have been candidates for any
of the Judiciary? [ N A E T Q ] elective position in the election immediately
preceding their appointment.
Justices
of the SC RTC Judge MTC/MCTC Commission of Elections (COMELEC) [ N A D C Me ]
and the (Sec. 15, Judge (Sec. a. Must be natural-born citizens;
Collegiate B.P. 129) 26, B.P. 129) b. At least 35 years of age;
Courts c. Holders of a college degree;
d. Have not been candidates in the
Citizenship
immediately preceding election;
Natural-born citizen e. Majority, including the Chairman, must be
members of the Philippine Bar who have
Age been engaged in the practice of law for at
At least 40 At least 35 At least 30 least ten (10) years. [Sec. 1, Art. IX-C,
years of years of age years of age Constitution]
age
Commission on Audit [ N A E ]
Experience
a. Natural born Filipino citizens
15 years or Has been Has been b. At least thirty-five (35) years of age
more as a engaged for engaged for c. CPAs with not less than ten (10) years of
judge of a at least 10 at least 5 auditing experience OR members of the
lower court years in the years in the Philippine bar with at least ten (10) years
OR has practice of practice of practice of law
been law OR has law OR has
engaged in held public held public Note: At no time shall all members belong to
the practice office in the office in the the same profession.
of law in the PH requiring PH requiring
PH for the admission to admission to H. Process of Legislation
same the practice the practice
period of law as an of law as an
1. What are the constitutional
indispensable indispensable requirements for the passage of laws? [ O P3 D3 ]
requisite requisite
Tenure [Sec. 11, Art. VIII] Answer: Every bill passed by Congress shall
Hold office during good behavior until they embrace only one subject, which shall be
reach the age of 70 OR become expressed in the title thereof. [Art. VI, Sec.
incapacitated to discharge their duties 26(1), 1987 Const.] No bill passed by either
House shall become a law unless it has passed
Qualifications [Sec. 7(3), Art. VIII]
three (3) readings on separate days, and
Person of proven competence, integrity, printed copies thereof in its final form have
probity, and independence [ C I P I ] been distributed to its members three (3) days
before its passage, except when the President
7. What are the qualifications of members certifies to the necessity of its immediate
of Constitutional Commissions? [ N A P C ] enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no
Civil Service Commission (CSC) amendment thereto shall be allowed, and the
a. Natural-born citizens of the Philippines; vote thereon shall be immediately thereafter,
b. At the time of their appointment, at least 35 and the yeas and nays entered in the Journal.
years of age; [Art. VI, Sec. 26(2), 1987 Const.]
c. With proven capacity for public
administration; and

Page 10 of 58
UP LAW BOC PRE-WEEK
2. What is the quorum prescribed for the
Houses of Congress?
Answer: A majority of all members of each
House shall constitute a quorum to do
business, but a smaller number may adjourn
from day to day and may compel the
attendance of absent Members in such manner
and under such penalties as such House may
determine. [Art. VI, Sec. 16, par. 2, 1987
Const.]
3. What is the difference between
“majority of all members of the House”
and “majority of the House”?
Answer: There is a difference between a
majority of “all the members of the House” and
a majority of “the House”, the latter requiring
less number than the first. Therefore, an
absolute majority (12) of all members of the
Senate less one (23), constitutes a
constitutional majority of the Senate for the
purpose of a quorum. [Avelino v. Cuenco, G.R.
No. L-2821]
4. Discuss how a law is enacted.
1. Preparation of the bill
a. The Member or the Bill Drafting
Division of the Reference and
Research Bureau prepares and drafts
the bill upon the Member's request.
2. First reading
a. The bill is filed with the Bills and Index
Service and the same is numbered and
reproduced.
b. Three days after its filing, the same is
included in the Order of Business for
First Reading.
c. On First Reading, the Secretary
General reads the title and number of
the bill. The Speaker refers the bill to
the appropriate Committee/s.
3. Committee consideration / action
a. The Committee where the bill was
referred to evaluates it to determine the
necessity of conducting public
hearings. If the Committee finds it
necessary to conduct public hearings,
it schedules the time thereof, issues
public notice and invites resource
persons. If the Committee finds that no
Page 11 of 58
POLITICAL LAW
public hearing is needed, it schedules
the bill for Committee discussion/s.
b. Based on the result of the public
hearings or Committee discussions,
the Committee may introduce
amendments, consolidate bills on the
same subject matter, or propose a
substitute bill. It then prepares the
corresponding committee report.
c. The Committee approves the
Committee Report and formally
transmits the same to the Plenary
Affairs Bureau.
4. Second reading
a. The Committee Report is registered
and numbered by the Bills and Index
Service. It is included in the Order of
Business and referred to the
Committee on Rules.
b. The Committee on Rules schedules
the bill for consideration on Second
Reading.
c. On Second Reading, the Secretary
General reads the number, title and
text of the bill and the following takes
place:
i. Period of Sponsorship and Debate
ii. Period of Amendments
iii. Voting which may be done by:
1. viva voce
2. count by tellers
3. division of the House; or
4. nominal voting
5. Third reading
a. The amendments, if any, are
engrossed and printed copies of the bill
are reproduced for Third Reading.
b. The engrossed bill is included in the
Calendar of Bills for Third Reading and
copies of the same are distributed to all
the Members three days before its
Third Reading.
c. On Third Reading, the Secretary
General reads only the number and title
of the bill.
d. A roll call or nominal voting is called
and a Member, if he desires, is given
three minutes to explain his vote. No
amendment on the bill is allowed at
this stage.
i. The bill is approved by an
affirmative vote of a majority of the
Members present.
UP LAW BOC PRE-WEEK
ii. If the bill is disapproved, the same
is transmitted to the Archives.
6. Transmittal of the approved bill to the
Senate
a. The approved bill is transmitted to the
Senate for its concurrence.
7. Senate action on approved bill of the
House
a. The bill undergoes the same legislative
process in the Senate.
8. Conference committee (Bicameral)
a. A Conference Committee is constituted
and is composed of Members from
each House of Congress to settle,
reconcile or thresh out differences or
disagreements on any provision of the
bill.
b. The conferees are not limited to
reconciling the differences in the bill but
may introduce new provisions germane
to the subject matter or may report out
an entirely new bill on the subject.
c. The Conference Committee prepares a
report to be signed by all the conferees
and the Chairman.
d. The Conference Committee Report is
submitted for consideration/approval of
both Houses. No amendment is
allowed.
9. Transmittal of the bill to the President
a. Copies of the bill, signed by the Senate
President and the Speaker of the
House of Representatives and certified
by both the Secretary of the Senate
and the Secretary General of the
House, are transmitted to the
President.
10. Presidential action on the bill
a. If the bill is approved by the President,
the same is assigned an RA number
and transmitted to the House where it
originated.
b. If the bill is vetoed, the same, together
with a message citing the reason for
the veto, is transmitted to the House
where the bill originated.
11. Action on approved bill
a. The bill is reproduced and copies are
sent to the Official Gazette Office for
publication and distribution to the
implementing agencies. It is then
included in the annual compilation of
Acts and Resolutions.
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POLITICAL LAW
12. Action on vetoed bill
a. The message is included in the Order
of Business. If the Congress decides to
override the veto, the House and the
Senate shall proceed separately to
reconsider the bill or the vetoed items
of the bill. If the bill or its vetoed items
is passed by a vote of two-thirds of the
Members of each House, such bill or
items shall become a law.
I. Natural Resources
1. Discuss the principles on the
nationalization under the 1987
Constitution.
Answer: Section 2, Article XII of the 1987
Constitution provides that: “The exploration,
development, and utilization of natural
resources shall be under the full control and
supervision of the State. The State may directly
undertake such activities, or it may enter into
co-production, joint venture, or production-
sharing agreements with Filipino citizens, or
corporations or associations at least sixty per
centum (60%) of whose capital is owned by
such citizens.”
Executive Order No. 65, or the 11th Foreign
Investment Negative List (FINL), Republic Act
No. 7042, also known as the Foreign
Investment Act (FIA) of 1991, SEC
Memorandum Circular No. 8, Series of 2013
(SEC MC No. 8, s. of 2013) and jurisprudence
reiterate this constitutional provision.
The FIA of 1991 defines a Philippine national
as: “A Philippine national shall mean a
corporation organized under the laws of the
Philippines of which at least 60% of the capital
stock outstanding and entitled to vote is owned
and held by citizens of the Philippines.”
The Supreme Court construes the term ‘capital’
in Section 11, Article XII of the 1987
Constitution refers only to shares of stock
entitled to vote in the election of directors
limiting it only to common shares, and not to the
total outstanding capital stock (common and
non-voting preferred shares). [Gamboa vs.
Teves, G.R. No. 176579, October 9, 2012]
UP LAW BOC PRE-WEEK
In conformity with the Gamboa ruling, SEC MC
No. 8, s. of 2013 was issued which the
Supreme Court affirmed in the case of Roy v.
Herbosa. [G.R. No. 207246, November 22,
2016]
SEC MC No. 8, s. of 2013 uses the two-tiered
test in determining compliance with the
required percentage of Filipino ownership.
Under the two-tiered test, the 60% required
Filipino ownership shall be applied to both: a)
the total number of outstanding shares of stock
entitled to vote in the election of directors; and
b) the total number of outstanding shares of
stock, whether or not entitled to vote in the
election of directors.
The two tests in determining the nationality of a
corporation which has corporate stockholders
are: (i) the Control Test; and (ii) the
Grandfather Rule.
J. Amendment and Revision of
the Constitution
1. Distinguish between amendment v.
revision.
Answer: Revision broadly implies a change
that alters a basic principle in the constitution,
like altering the principle of separation of
powers or the system of checks-and-balances.
There is also revision if the change alters the
substantial entirety of the constitution, as when
the change affects substantial provisions of the
constitution.
On the other hand, amendment broadly refers
to a change that adds, reduces, or deletes
without altering the basic principle involved.
[Lambino v. COMELEC, G.R. No. 174153]
2. What are the different methods of
interpreting the Constitution?
Answer: There are three methods of
interpreting the Constitution which are:
1. Verba legis
2. Ratio legis est anima, and
3. Ut magis valeat quam pereat.
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POLITICAL LAW
Verba legis is when the words of the
Constitution must be given their ordinary
meaning. It is to be assumed that the words in
which constitutional provisions are couched
express the objective sought to be attained.
They are to be given their ordinary meaning
except where technical terms are employed in
which case the significance thus attached to
them prevails. [Francisco v. HoR, G.R. No.
160261]
Ratio legis est anima is when the meaning is
inferred from the supposed intent of the
framers or fathoming the original
understanding of the individuals who adopted
the basic document. [David v. SET, G.R. No.
221538]
Ut magis valeat quam pereat is reading a
constitutional provision requires awareness of
its relation with the whole of the Constitution. A
constitutional provision is but a constituent of a
greater whole. What is called into operation is
the entire document, not simply a peripheral
item. The Constitution should, therefore, be
appreciated and read as a singular, whole unit.
Each provision must be understood and
effected in a way that gives life to all that the
Constitution contains, from its foundational
principles to its finest fixings. [David v. SET,
G.R. No. 221538]
3. What are the methods of amending the
Constitution?
Answer: The Constitution may be amended
through
1. A vote of ¾ of all the members of Congress,
also known as Constituent Assembly [Art.
XVIII, Sec. 1, 1987 Const.]
2. A constitutional convention; [Art. XVIII,
Sec. 1, 1987 Const.]; or
3. By People’s Initiative upon petition of at
least 12 percentum of the total number of
all registered voters. [Art. XVIII, Sec. 2,
1987 Const.]
UP LAW BOC PRE-WEEK
INTERNATIONAL LAW
A. Sources Of Obligation In
International Law
1. What are the sources of international
law?
Answer: The generally accepted sources of
international law are primary sources of
international law and subsidiary means of
determining rules of international law [Art. 38,
ICJ Statute].
2. Distinguish between primary sources
and subsidiary sources of international
law, and give an illustration of each.
Answer: Under Article 38 of the Statute of the
International Court of Justice, the primary
sources of international law are the following: [ C C G ] international law, requires that the state
a. International conventions, whether general
or particular, establishing rules expressly
recognized by the contesting States, e.g.,
Vienna Convention on the Law of Treaties;
b. International customs, as evidence of a
general practice accepted by law, e.g.,
cabotage, the prohibition against slavery,
and the prohibition against torture; and
c. General principles of law recognized by
civilized nations, e.g., prescription, res
judicata, and due process.
On the other hand, the subsidiary sources of
international law are:
a. Judicial decisions, subject to the provisions
of Article 59, e.g., the decision in the Anglo-
Norwegian Fisheries Case and Nicaragua
v. United States, and
b. Teachings of the most highly qualified
publicists of various nations, e.g. Human
Rights in International Law by Lauterpacht
and International Law by Oppenheim-
Lauterpacht.
3. What are treaties or international
conventions?
Answer: Treaties or international conventions
are international agreements concluded
Page 14 of 58
POLITICAL LAW
between states in written form and governed by
international law, whether embodied in a single
instrument or in two or more related
instruments and whatever its particular
designation” [Art. 2(1)(a), VCLT]
4. What is customary international law?
Answer: Customary international law is
defined as general practice accepted as law
[Art. 38 (1) (b), ICJ Statute].
The elements of customary law are:
a. State practice, which is consistent and
uniform conduct of states within the period
in question; and
b. Opinio juris sive necessitates.
5. Explain the maxim opinio juris sive
necessitates or opinion juris for short.
Answer: Opinio juris sive necessitatis, which is
an element for the establishment of customary
practice or norm be carried out in such a way
as to be evidence of the belief that it is
obligatory by the existence of a rule of law
requiring it [Bayan Muna v. Romulo, 2011]. The
States concerned must act in such a manner
because it believes it is obligated to do so.
6. What is the persistent objector
doctrine?
Answer: The persistent objector doctrine
provides that if a State persistently objects to a
developing norm of international law, it will not
be bound by that norm when it ripens into a
customary norm. This is a valid defense
against the enforceability of a customary norm
to be the persistent objector unless the
customary norm attains the status of a
peremptory norm [Anglo-Norwegian Fisheries
Case, ICJ, 1951].
7. What are general principles of law and
why are they a source of international
law?
Answer: General principles of law refer to
principles in municipal law that are so
fundamental to the maintenance of justice that
they are basic tenets commonly adhered to in
UP LAW BOC PRE-WEEK
virtually every major legal system, allowing
them to be appropriated to apply to the
relations of states.
This is used to avoid a non liquet, i.e. when a
court does not have a treaty or customary norm
to decide on.
8. What are examples of general principles
of law?
Answer: Examples include:
1. Estoppel (Temple of Preah Vihear Case,
ICJ, 1962);
2. Res Judicata;
3. Res Inter Alios Acta;
4. Prescription;
5. Duty to Make Reparations (Chorzow
Factory Case, PCIJ, 1927);
6. Abuse of Rights
7. Good Faith
8. Principle of Reciprocity; and
9. Circumstantial Evidence.
9. Is the International Court of Justice
bound by the doctrine of stare decisis?
Answer: No, the decision of the ICJ has no
binding force except between parties and in
respect of that particular case [Art. 59, ICJ
Statute].
However, the Court may apply judicial
decisions as subsidiary means for the
determination of the rule of law [Art. 38(1)(d),
ICJ Statute].
B. Relationship Between
International and National
Law
1. What are the two main theoretical
approaches to the relationship between
international law and national law?
Answer: They are monism and dualism.
In monism, it is believed that international law
and national law are part of a single legal order,
and international law is automatically
incorporated into each nation’s legal system
and is ultimately supreme over municipal law.
Page 15 of 58
POLITICAL LAW
In dualism, it is contended that international law
and national law are distinct fields, with each
nation ascertaining for itself as to the extent
that international law is incorporated into its
domestic legal system. Under this approach,
the status of international law in the domestic
system is determined by municipal law, and
when it provides that international law applies
in whole or in part within its jurisdiction, it is an
exercise of the authority of municipal law – an
adoption or transformation of the rules of
international law [Government of the USA v.
Purganan, 2002].
2. What are the ways by which
international law can become part of
municipal law under Philippine
jurisdiction?
Answer: Under the 1987 Constitution,
international law can become part of the sphere
of municipal law either by transformation or
incorporation [Pharmaceutical and Health Care
Association v. Duque, 2007].
3. What is the doctrine of incorporation?
Answer: The doctrine of incorporation means
that the general rules of international law form
part of the law of the land and no further
legislative action is required to make them
applicable to a country.
The Philippines follows this doctrine as Article
II, Section 2 of the Constitution states that the
Philippines adopts the generally accepted
principles of international law as part of the law
of the land.
4. What is the doctrine of transformation?
Answer: The doctrine of transformation
provides that specific international law must be
transformed into a domestic law through a
constitutional mechanism, such as local
legislation, before it shall be binding upon the
State.
In Philippine jurisdiction, treaties or
conventional international law must go through
a process prescribed by the Constitution for it
to be transformed into municipal law that can
be applied to domestic conflicts. Article VII,
UP LAW BOC PRE-WEEK POLITICAL LAW

Section 21 of the Constitution provides that

treaties become part of the law of the land by
concurrence of at least ⅔ of all the members of
the Senate.

5. Can a State be excused from a breach

under international law by invoking its
own law?

Answer: A State cannot invoke its own

national law to resist an international claim or
excuse itself from breach of duty under
international law [Art. 6, VCLT; Polish Nationals
in Danzig Case (PCIJ, 1932); Art. 32, Articles
on State Responsibility, “ASR”].

6. What is the doctrine of sovereign

immunity in international law?

Answer: By the doctrine of sovereign

immunity, a State, its agents and property are
immune from the judicial process of another
State, except with its consent. Thus, immunity
may be waived and a State may permit itself to
be sued in the courts of another State.

7. What is the principle of auto-limitation?

Answer: Under the principle of auto-limitation,

any state may by its consent, express or
implied, submit to a restriction of its sovereign
rights. There may thus be a curtailment of what
otherwise is a plenary power [Reagan v. CIR,
1969].

8. What is the relationship between

reciprocity and the principle of auto-
limitation?

Answer: By reciprocity, States grant to one

another rights or concessions, in exchange for
identical or comparable duties, thus acquiring a
right as an extension of its sovereignty and at
the same time accepting an obligation as a
limitation to its sovereign will, hence, a
complementation of reciprocity and auto-
limitation.

Page 16 of 58
UP LAW BOC PRE-WEEK LABOR LAW

LABOR LAW
PRE-WEEK

Page 17 of 58
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LABOR LAW
1. What are the exceptions to the ban on
direct hiring of migrant workers? [ D I G S ]
Answer: No employer shall directly hire an
Overseas Filipino Worker for overseas
employment, except: (a) Members of the
diplomatic corps; (b) International
organizations; (c) Heads of state and
government officials with the rank of at least
deputy minister; (4) Other employers as may
be allowed by the Secretary of Labor and
Employment, such as:
1. Those provided in (a), (b) and (c) who bear
a lesser rank, if endorsed by the Philippine
Overseas Labor Office (POLO), or Head of
Mission in the absence of the POLO;
2. Professionals and skilled workers with duly
executed/authenticated contracts
containing terms and conditions over and
above the standards set by the POEA. The
number of professional and skilled
Overseas Filipino Workers hired for the first
time by the employer shall not exceed five
(5). For the purpose of determining the
number, workers hired as a group shall be
counted as one; OR
3. Workers hired by a relative/family member
who is a permanent resident of the host
country. [Sec. 124, Revised POEA Rules
and Regulations]
2. What are the entities prohibited from
recruitment and placement for overseas
employment?
Answer: For overseas employment, the
following are banned from recruitment and
placement:
1. Travel agencies and sales agencies of
airline companies, whether for profit or not.
[Art. 26]
2. Officers or members of the Board of any
corporation or partners in a partnership
engaged in the business of a travel agency;
3. Corporations and partnerships, where any
of its officers, members of the board or
partners is also an officer, member of the
board or partner of a corporation or
Page 18 of 58
LABOR LAW
partnership engaged in the business of a
travel agency;
4. Individuals, partners, officers, or directors
of an insurance company who make,
propose or provide an insurance contract
under the compulsory insurance coverage
for agency-hired OFWs;
5. Sole proprietors, partners or officers and
members of the board with derogatory
records, such as, but not limited to the ff: a.
Those convicted or against whom
a. probable cause or prima facie finding of
guilt is determined by a competent
authority for illegal recruitment or for
other related crimes or offenses
committed in the course of, related to,
or resulting from, illegal recruitment, or
for crimes involving moral turpitude;
b. Those agencies whose licenses have
been revoked for violation of RA 8042,
PD 442, RA 9208, and their IRRs;
c. Those agencies whose licenses have
been cancelled, or those who, pursuant
to the order of the Administrator, were
included in the list of persons with
derogatory record for violation of
recruitment laws and regulations;
6. Any official employee of the DOLE, POEA,
OWWA, DFA, DOJ, DOH, BI, IC, NLRC,
TESDA, CFO, NBI, PNP, Civil Aviation
Authority of the Philippines, international
airport authorities, and other government
agencies directly involved in the
implementation of RA 8042, as amended,
and/or any of his/her relatives within the
fourth civil degree of consanguinity or
affinity. [Part II, Rule I, Sec. 3, 2016
Revised POEA Rules and Regulations]
3. What is the difference between illegal
recruitment and estafa? Can one be
charged with both for the same act?
Answer: A person may be charged with both
illegal and recruitment and estafa without
violating the rule on double jeopardy. The crime
of illegal recruitment is malum prohibitum, and
intent is not necessary. In estafa, the crime is
mala in se, and criminal intent is a requisite for
conviction under the RPC. Moreover, in illegal
recruitment, profit is immaterial; on the other
hand, a clear showing that the offended party
parted with his money or property upon the
UP LAW BOC PRE-WEEK
offender’s false pretenses, and suffered
damage thereby, is required for conviction.
[People v. Melissa Chua, G.R. No. 187052
(2012)]
4. May a bonus be legally demandable?
Answer: The general rule is that a bonus is an
act of gratuity on the part of the employer, and
is a management prerogative which cannot be
forced on an employer. [Kamaya Point Hotel v.
NLRC, G.R. No. 7289 (1989)]
However, a bonus may be legally enforceable
under the following circumstances:
1. It must have been promised by the
employer and expressly agreed upon by
the parties; or
2. It must have had a fixed amount and had
been a long and regular practice of the part
of the employer. [American Wire and Cable
Union v. American Wire, G.R. No. 155059
(2005)]
5. How do you determine whether an
employee-employer relationship
exists?
Answer: The four-fold test requires the
presence of the following elements: [ S W D C ]
1. Selection and engagement of the
employee;
2. Payment of wages;
3. Power of dismissal; and
4. Employer’s power to control the
employee’s conduct with respect to the
means and methods by which the work is
to be accomplished.
The most important element is the power of
control over the employee. It pertains not only
to results, but also to the means and methods
to attain those results. [Lirio v. Genovia, G.R.
No. 169757 (2011)].
6. How is a project worker different from a
casual or contractual worker?
Answer: A project employee is one who is
hired for carrying out a separate job, distinct
from the other undertakings of the company,
the scope and duration of which has been
determined and made known to the employees
Page 19 of 58
LABOR LAW
at the time of employment. [Hanjin Heavy
Industries & Const. Co. v. Ibañez, G.R. No.
170181 (2008)]
Fixed-term employees (contractual
employees) are different from project
employees, as the former negotiates their
employment contract on more equal footing
with the employer than the latter. Furthermore,
both kinds of employment happen within a
period. For project employees, the determining
factor is the activity to be performed. For fixed-
term employees, the determining factor is the
day certain agreed upon (i.e., the
commencement and termination of the EER).
[GMA Network v. Pabriga, G.R. No. 176419
(2013)]
Meanwhile, a casual employee is engaged to
perform a job, work, or service that is merely
incidental to the business of the employer, and
such job, work, or service is for a definite period
made known the employee at the time of
engagement. After 1 year of service, the casual
employee becomes a regular employee,
continuous or broken, with respect to activity
employed, unless he has been contracted for a
specific project. A project employee does not
become a regular employee even after 1 year
of service. [Raycor Aircontrol Systems v.
NLRC, G.R. No. 114290 (1996)]
7. What is constructive dismissal?
Answer: Constructive dismissal is cessation of
work because continued employment is either: [ D I D ]
1. rendered impossible, unreasonable or
unlikely;
2. when there is a demotion in rank or
diminution in pay or both; or
3. when a clear discrimination, insensibility, or
disdain by an employer becomes
unbearable to the employee. [Dusit Hotel
Nikko v. NUHWRAIN-Dusit Hotel Chapter,
G.R. No. 160391 (2005)]
The test to determine whether an employee
was constructively dismissed is whether a
reasonable person in the employee’s position
would have felt compelled to give up his
position under the circumstances. [Tuazon v.
Bank of Commerce, G.R. No. 192076 (2012)]
UP LAW BOC
8. What are the just causes for termination
of an employee? What are the
authorized causes for termination of an
employee?
Answer: The just causes for termination of an
employee are: [ S G F C O ]
1. Serious misconduct or willful disobedience
by the employee of the lawful orders of his
employer or representatives in connection
with his work;
2. Gross and habitual neglect by the
employee of his duties;
3. Fraud or willful breach by the employee of
the trust reposed in him by his employer or
duly authorized representative;
4. Commission of a crime or offense by the
employee against the person of his
employer or any immediate member of his
family or his duly authorized
representatives; and
5. Other causes analogous to the foregoing.
[Art. 297]
The authorized causes for termination of an
employee are the following: [ C I R I ]
1. The installation of labor-saving devices,
2. Redundancy,
3. Retrenchment to prevent losses or
4. The closing or cessation of operation of the
establishment or undertaking [Art. 298]
9. What are the requirements for a valid
dismissal of an employee?
Answer: Dismissal has two facets: the legality
of the dismissal, which constitutes substantive
due process, and the legality of the manner of
dismissal, which constitutes procedural due
process. [Baron v. National Labor Relations
Commission, G.R. No. 182299 (2010)]
Failure to observe substantive due process will
render the dismissal INVALID. Failure to
observe procedural due process will not affect
the validity of the dismissal, but will entitle the
employee to nominal damages.
Page 20 of 58
PRE-WEEK LABOR LAW
10. What is the procedure for termination
on the basis of a just cause under the
Labor Code?
Answer: 1st step: 1st notice specifying the
ground/s for termination and giving the
employee ample opportunity to explain their
side.
2nd step: Hearing or opportunity to be heard.
Note: A formal hearing is not necessary.
3rd step: 2nd notice indicating that upon due
consideration of all the circumstances, grounds
have been established to justify termination.
11. What is the procedure for termination
on the basis of an authorized cause
under the Labor Code?
Answer: The employer should give notice to
BOTH the employee and the DOLE AT LEAST
one month prior to the date of termination of
employment. [Art. 298]
12. Who may not form, join or assist labor
organizations? [ M C N I C A ]
Answer:
1. Managerial employees [Art. 255]
2. Confidential employees [Metrolab
Industries Inc. v. Roldan-Confessor, G.R.
No. 108855 (1996)]
3. Non-employees
4. Employees of international organizations
[International Catholic Migration
Commission v. Calleja, G.R. No. 85750
(1990)]
5. Member-employee of a cooperative
[Batangas-I Electric Cooperative Labor
Union v. Romeo A. Young, G.R. No. 62386
(1988)]
6. Members of the AFP, police officers,
firemen, and jail guards [EO 180]
13. What is the “double majority rule” in
certification elections?
Answer: For there to be a valid certification
election, majority of the bargaining unit must
have voted, AND the winning union must have
garnered majority of the valid votes cast.
[UWHRAIN-Manila Pavilion Hotel Chapter v.
UP LAW BOC PRE-WEEK
Secretary of Labor and Employment, G.R. No.
181531 (2009)]
14. What are the bars to certification
election? [ C O N D ]
Answer:
1. One-year bar rule – No certification
election may be held within 1 year from the
time a valid certification, consent, or run-off
election has been conducted within the
bargaining unit.
2. Negotiation bar rule – No certification
may be filed within 1 year after the valid
certification election when the duly certified
union has commenced and sustained
negotiations in good faith with the
employer.
3. Deadlock bar rule – No certification
election may be filed when there exists a
bargaining deadlock between the union
and the employer after negotiations in good
faith.
4. Contract bar rule – No certification
election may be filed for the duration of a
duly registered existing CBA between the
employer and the union, except for 60 days
before the expiration of the CBA (freedom
period).
15. May a criminal prosecution for Unfair
Labor Practice (ULP) be instituted
before a finding of guilt in an
administrative proceeding?
Answer: No criminal prosecution for ULP may
be instituted without a final judgment that ULP
has been committed, having first been obtained
in an administrative proceeding. However,
during the pendency of the administrative
proceeding, the running of the prescription of
the criminal offense shall be considered
interrupted. [Art. 258]
16. What are the requirements to conduct a
valid strike?
Answer: A valid strike must be based on a
lawful ground, and must conform with the
procedural requirements set by the law. The
grounds for a valid strike are: [ D U ]
1. Bargaining deadlocks
2. Unfair Labor Practice
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LABOR LAW
The procedural requirements for a valid strike
are the following: [ E N C V A R O ]
1. An effort to bargain (in cases of bargaining
deadlocks)
2. Filing and service of notice of strike with the
DOLE
3. Observance of the cooling period (15 days
for ULP; 30 days for deadlock; no period for
ULP + union-busting)
4. Notice of strike vote meeting to NCMB
within 24 hours before the strike vote
5. Approval by majority of the total union
membership in a secret ballot
6. Report of vote sent to NCMB at least 7 days
before intended date of strike.
7. Observance of the 7-day waiting period.
17. When may the Secretary of Labor and
Employment (SOLE) assume
jurisdiction over labor disputes?
Answer: When in his opinion there exists a
labor dispute causing, or likely to cause, a
strike or lockout in an industry indispensable to
the national interest, the SOLE may assume
jurisdiction over the dispute and decide it or
certify the same to the NLRC for compulsory
arbitration. [Art. 278(g)]
18. What are the effects of the SOLE’s
assumption of jurisdiction?
Answer: The SOLE’s assumption of
jurisdiction shall have the effect of
automatically enjoining the intended or
impending strike or lockout as specified in the
assumption of certification order. If one has
already taken place at the time of assumption
or certification, all striking or locked out
employees shall immediately return-to-work
and the employer shall immediately resume
operations and readmit all workers under the
same terms and conditions prevailing before
the strike or lockout. [Art. 278(g)]
19. What is the “no refund” doctrine?
Answer: An employee cannot be compelled to
reimburse the salaries and wages he received
during the pendency of his appeal,
notwithstanding the reversal by the NLRC of
the LA's order of reinstatement. [College of the
UP LAW BOC PRE-WEEK LABOR LAW

Immaculate Conception v. NLRC, G.R. No.
167563 (2010)]
20. What is labor-only contracting? What
are its elements?
Answer: Labor-only contracting refers to an
arrangement where the contractor or
subcontractor merely recruits, supplies, or
places workers to perform a job or work for a
principal. [Sec. 3(h), DO No. 174-17]
Labor-only contracting is present in the
following cases: [ SP / C ]
a. (i) When the contractor or subcontractor
does not have substantial capital (defined
as P5M in paid-up capital stock/shares or
net worth), OR the contractor or
subcontractor does not have investments
in the form of tools, equipment,
machineries, supervision, work premises,
among others; AND
years. [Victory Liner, Inc. v. Race, G.R. No.
164820 (2007)]
(c) All ULPs shall be filed within one (1) year
from accrual of such ULP. [Art. 258]
(d) Offenses penalized under the Labor Code
shall prescribe in three (3) years.
(e) Illegal recruitment cases involving migrant
workers shall prescribe in five (5) years.
However, those cases that involve
economic sabotage shall prescribe in
twenty (20) years. [Sec. 12, Migrant and
Overseas Filipinos Act]
For illegal recruitment cases involving local
workers, the prescription period is three (3)
years. [Art. 305]

(ii) The contractor’s or subcontractor’s

employees recruited and placed are
performing activities which are directly
related to the main business operation
of the principal; OR

b. The contractor or subcontractor does not

exercise the right to control over the
performance of the work of the employee.
[Sec. 5, DO No. 174-17]

21. What are the prescriptive periods for the

following causes of action: (a) money
claims arising from employer-employee
relations; (b) illegal dismissal; (c) ULP;
(d) offenses under the Labor Code; and
(e) illegal recruitment?

(a) All money claims arising from employer-

employee relations accruing during the
effectivity of the Labor Code shall be filed
within three (3) years from the time the
cause of action accrued. [Art. 306]
(b) In illegal dismissal cases, the employee
concerned is given a period of four years
from the time of his dismissal within which
to institute a complaint. This is based on
Art. 1146 of the Civil Code which states that
actions based upon an injury to the rights
of the plaintiff must be brought within four

Page 22 of 58
UP LAW BOC PRE-WEEK TAXATION LAW

TAXATION LAW
PRE-WEEK

Page 23 of 58
UP LAW BOC PRE-WEEK TAXATION LAW

or may be
TAXATION LAW 1 granted to
public
service
GENERAL PRINCIPLES companies
or public
utilities.
A. Nature and Characteristics of
Purpose
Taxation
Property Property is Property is
Q: What is the nature of the power of
(money) is taken for regulated for
taxation?
taken for public use the purpose
A:
support of of promoting
1. Inherent in sovereignty - The power to tax
the the general
is an attribute of sovereignty. It is a power
government welfare
emanating from necessity because it
imposes a necessary burden to preserve
the State's sovereignty xxx [Phil. Guaranty Persons Affected
Co., Inc. v. Commissioner, G.R. No. L-
22074 (1965)]. A community An individual A community
2. Essentially a legislative function – The or a class of as the owner or a class of
power to tax is peculiarly and exclusively individuals of a property individuals
legislative and cannot be exercised by the
executive or judicial branch of the Effect
government [1 Cooley 160-161]. Hence,
only Congress can impose taxes. The levy Contribution There is a At most,
of a tax, however, may also be made by a becomes transfer of there is a
local legislative body subject to such part of the the right to restraint on
limitations as may be provided by law. public fund property the use of
3. Subject to constitutional and inherent property
limitations – These limitations are those
provided in the fundamental law or implied
Benefits
therefrom, while the rest spring from the
nature of the taxing power itself although
they may or may not be provided in the Protection Market value Indirect
Constitution. and benefits of the benefits
he receives property
Q: Distinguish the Power of Taxation from
Police Power and Eminent Domain. Amount of disposition
A: They are distinguished as follows:
Generally, Market value Amount
TAXATION ED PP there is no of property imposed
limit taken should be
commensu-
Authority (who exercises the Power)
rate to cover
the cost of
Only the the Only the regulation,
government government government issuance of a
or its political or its political or its political license or
subdivision. subdivisions subdivision surveillance

Page 24 of 58
UP LAW BOC PRE-WEEK
Relationship to Constitution
Subject to Inferior to the Relatively
Constitutio- impairment free from
nal limitation, prohibition Constitutio-
including the nal limita-
prohibition tions and is
against superior to
impairment the
of the impairment
obligation of of contract
contracts provision
Q: What is the “Lifeblood Theory”?
A: The “lifeblood theory” considers taxes as the
lifeblood of the government and so should be
collected without unnecessary hindrance. It is
said that taxes are what we pay for civilized
society. Without taxes, the government would
be paralyzed for lack of the motive power to
activate and operate it [CIR v. Algue, G.R. No.
L-28896 (1988)]
Q: What is the “Necessity Theory”?
A: The “necessity theory” considers taxation as
a power emanating from necessity. It is a
necessary burden to preserve the State's
sovereignty and a means to give the citizenry
an army to resist an aggression, a navy to
defend its shores from invasion, a corps of civil
servants to serve, public improvement
designed for the, enjoyment of the citizenry and
those which, come within the State's territory,
and facilities and protection which a
government is supposed to provide. [Phil.
Guaranty v. CIR, G.R. No. L-22074 (1965)]
Q: What is the “Benefits-Protection Theory”
(or the Doctrine of Symbiotic Relationship)?
A: Under the “benefits-protection theory”,
taxation arises because of the reciprocal
relation of protection and support between the
State and the taxpayers. The state gives
protection and for it to continue giving
protection, it must be supported by the
taxpayers in the form of taxes. [CIR v. Algue,
G.R. No. L-28896 (1988)]
Page 25 of 58
TAXATION LAW
B. Inherent Limitations
Q: What are the inherent limitations on
taxation? Explain each briefly.
A:
1. Public Purpose - taxes must be exacted
for a public purpose. The proceeds of the
tax must be used for the support of the
State or for some recognized objects of
government or directly to promote the
welfare of the community.
2. Inherently Legislative - The power to tax
is exclusively vested in the legislative body
and it may not be re-delegated. Judge
Cooley enunciates the doctrine in the
following oft-quoted language: "One of the
settled maxims in constitutional law is that
the power conferred upon the legislature to
make laws cannot be delegated by that
department to any other body or authority.”
[People v. Vera, G.R. No. L-45685 (1937)]
3. Territorial - A state may not tax property
lying outside its borders or lay an excise or
privilege tax upon the exercise or
enjoyment of a right or privilege derived
from the laws of another state and therein
exercise and enjoyed. [51 Am.Jur. 87-88].
4. International Comity - comity is the
respect accorded by nations to each other
because they are sovereign equals. Thus,
the property or income of a foreign state or
government may not be the subject of
taxation by another state.
5. Exemption of Government Entities,
Agencies, and Instrumentalities -
Agencies and instrumentalities of the
government are exempt from tax. Their
exemption rests on the State's sovereign
immunity from taxation. The State cannot
be taxed without its consent and such
consent, being in derogation of its
sovereignty, is to be strictly construed.
[Gomez v. Palomar, GR No. L-23645, 29
October 1968]
C. Constitutional Limitations
Q: What Constitutional provisions directly
affect taxation?
A:
1. Prohibition against imprisonment for non-
payment of poll tax;
UP LAW BOC PRE-WEEK
2. Uniformity and equality of taxation;
3. Grant by Congress of authority to the
President to impose tariff rates;
4. Prohibition against taxation of religious,
charitable entities, and educational entities;
5. Prohibition against taxation of non-stock,
non-profit educational institutions;
6. Majority vote of Congress for grant of tax
exemption;
7. Prohibition on use of tax levied for special
purpose;
8. President’s veto power on appropriation,
revenue, tariff bills;
9. Non-impairment of jurisdiction of the
Supreme Court;
10. Grant of power to the local government
units to create its own sources of revenue;
11. Flexible tariff clause;
12. Exemption from real property taxes; and
13. No appropriation or use of public money for
religious purposes.
Q: What Constitutional provisions
indirectly affect taxation?
A:
1. Due process
2. Equal protection;
3. Religious freedom;
4. Non-impairment of obligations of contracts;
5. Freedom of speech and expression;
6. Presidential power to grant reprieves,
communications, and pardons, and remit
fines and forfeitures after conviction by final
judgement; and
7. No taking of private property for public use
without just compensation
Q: What is a poll tax?
A: Capitation or poll taxes are taxes of a fixed
amount upon all persons, or upon all the
persons of a certain class, resident within a
specified territory, without regard to their
property or the occupations in which they may
be engaged. Taxes of a specified amount upon
each person performing a certain act or
engaging in a certain business or profession
are not, however, poll taxes. [51 Am. Jur. 66-
67]
Q: What does uniformity of taxation mean?
A: Uniformity of taxation means that all taxable
articles or properties of the same class shall be
taxed at the same rate. The rule requires the
Page 26 of 58
TAXATION LAW
uniform application and operation, without
discrimination, of the tax in every place where
the subject of it is found. [City of Baguio v. De
Leon, G.R. No. L-24756 (1968)]
Q: When is taxation equitable?
A: Taxation is said to be equitable when its
burden falls on those better able to pay. [Reyes
v. Almanzor, G.R. Nos. L-49839 (1991)]
Q: When is a classification of objects of
taxation valid?
A: Classification, to be valid, must be
reasonable and this requirement is not deemed
satisfied unless:
a. It is based upon substantial distinctions
which make real differences;
b. These are germane to the purpose of the
legislation or ordinance;
c. The classification applies not only to
present conditions but also to future
conditions substantially identical to those of
the present; and
d. The classification applies equally to all
those who belong to the same class.
[Pepsi-Cola v. Butuan City, G.R. No. L-
22814 (1968)]
Q: What are the rules on the prohibition
against taxation of religious, charitable
entities, and educational entities?
A:
a. Charitable institutions, churches and
personages or convents appurtenant
thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements,
b. Actually, directly, and exclusively used for
religious, charitable, or educational
purposes shall be exempt from taxation.
c. The tax exemption under this constitutional
provision covers property taxes only and
not other taxes [Lladoc v. Commissioner,
G.R. No. L-19201 (1965)].
d. In general, special assessments are not
covered by the exemption because by
nature they are not classified as taxes.
[Apostolic Prefect v. City Treasurer of
Baguio, G.R. No. L-47252 (1941)]
Q: What taxes are non-stock, non-profit
educational institutions exempt from?
A: The exemption covers income, property,
and donor’s taxes, custom duties, and other
UP LAW BOC
taxes imposed by either or both the national
government or political subdivisions on all
revenues, assets, property or donations, used
actually, directly and exclusively for
educational purposes.
Q: What is the vote required from Congress
on the grant of tax exemptions?
A:
a. No law granting any tax exemption shall be
passed without the concurrence of a
majority of all the Members of the
Congress. [Sec. 28, Art. VI, 1987
Constitution.]
b. Vote required for the grant of
exemption: Absolute majority of the
members of Congress (at least ½ + 1 of
ALL the members voting SEPARATELY)
c. Vote required for withdrawal of such
grant of exemption: Relative majority is
sufficient (MAJORITY of the QUORUM).
Q: What is the nature of the President’s veto
power on appropriation, revenue, tariff
bills?
A: The President shall have the power to veto
any particular item or items in an
appropriation, revenue, or tariff bill, but the veto
shall not affect the item or times to which he
does not object. [Sec. 27(2), Art. VI, 1987
Constitution.]
Q: What is the jurisdiction of the Supreme
Court over tax cases?
A:
a. The Supreme Court shall have the power
to review, revise, modify or affirm on appeal
or certiorari, as the laws or the Rules of
Court may provide, final judgments and
orders of lower courts in all cases involving
the legality of any tax, impost, assessment
or toll or any penalty imposed in relation
thereto. [Sec. 5(2(b)), Art. VIII, 1987
Constitution].
b. Even the legislative body cannot deprive
the SC of its appellate jurisdiction over all
cases coming from inferior courts where
the constitutionality or validity of an
ordinance or the legality of any tax, impost,
assessment, or toll is in question. [San
Miguel Corp v. Avelino, G.R. No. L-39699
(1979)]
Page 27 of 58
PRE-WEEK TAXATION LAW
c. Scope of Judicial Review in taxation:
limited only to the interpretation and
application of tax laws. Its power does not
include inquiry into the policy of legislation.
Neither can it legitimately question or
refuse to sanction the provisions of any law
consistent with the Constitution. [Coll. v.
Bisaya Land Transportation, 105 Phil. 338
(1959)].
Q: What is the rule on the prohibition of
appropriation or use of public money for
religious purposes?
A: No public money or property shall be
appropriated, applied, paid, or employed,
directly or indirectly, for the use, benefit, or
support of any sect, church, denomination,
sectarian institution, or system of religion, or of
any priest, preacher, minister, other religious
teacher, or dignitary as such, except when
such priest, preacher, minister, or dignitary is
assigned to the armed forces, or to any penal
institution, or government orphanage or
leprosarium. [Sec. 29, Art. VI, 1987
Constitution]
Q: What are the Due Process requirements
in Taxation?
A:
a. Public purpose
b. Imposed within taxing authority’s territorial
jurisdiction
c. Assessment or collection is not arbitrary or
oppressive: The due process clause may
be invoked where a taxing statute is so
arbitrary that it finds no support in the
Constitution, as where it can be shown to
amount to the confiscation of property.
[Sison v. Ancheta, G.R. No. L-
59431(1984)]
Q: When does taxation violate the equal
protection clause?
A: What the Constitution prohibits is class
legislation which discriminates against some
and favors others. As long as there are rational
or reasonable grounds for doing so, Congress
may, therefore, group the persons or properties
to be taxed and it is sufficient, “if all of the same
class are subject to the same rate and the tax
is administered impartially upon them.” [1
Cooley 608].
UP LAW BOC PRE-WEEK
Q: When does taxation violate the non-
impairment clause?
A: The Contract Clause has never been
thought as a limitation on the exercise of the
State's power of taxation save only where a tax
exemption has been granted for a valid
consideration. [Tolentino v. Secretary of
Finance]
D. Requisites of a Valid Tax
Q: What are the elements of a valid tax?
A: The following are the elements of a valid tax:
1. It must be for a public purpose;
2. Rule of taxation should be uniform;
3. The person or property taxed is within the
jurisdiction of the taxing authority;
4. Assessment and collection is in
consonance with the due process clause;
AND
5. The tax must not infringe on the inherent
and constitutional limitations of the
power of taxation.
E. Kinds of Taxes
Q: What kinds of taxes are imposed on
different objects of taxation?
A:
1. Personal, Poll or Capitation Tax – tax of
a fixed amount imposed on persons
residing within a specified territory, whether
citizens or not, without regard to their
property or the occupation or business in
which they may be engaged (e.g.
community (formerly residence) tax).
2. Property Tax – tax imposed on property,
real or personal, in proportion to its value or
in accordance with some other reasonable
method of apportionment (e.g., real estate
tax). The obligation to pay the tax is
absolute and unavoidable and is not based
upon the voluntary action of the person
assessed.
3. Privilege/Excise Tax – a charge imposed
upon:
a. the performance of an act,
b. the enjoyment of a privilege, or
c. the engagement in an occupation,
profession, or business.
Page 28 of 58
TAXATION LAW
The obligation to pay excise/privilege tax is
based on the voluntary action of the person
taxed in performing the act or engaging in
the activity which is subject to the excise
(e.g., income tax, value added tax, estate
tax, donor’s tax).
Q: Distinguish “direct taxes” from “indirect
taxes”.
A: These relate to the burden or incidence of
taxation.
a. Direct Taxes – taxes which are demanded
from persons who also shoulder them;
taxes for which the taxpayer is directly or
primarily liable, or which he cannot shift to
another. The liability for the payment of the
tax (incidence) and the burden (impact) of
the tax falls on the same person. (e.g.,
income tax, estate tax, donor’s tax,
community tax)
b. Indirect Taxes – taxes which are
demanded from one person in the
expectation and intention that he shall
indemnify himself at the expense of
another, falling finally upon the ultimate
purchaser or consumer; taxes levied upon
transactions or activities before the articles
subject matter thereof, reach the
consumers who ultimately pay for them not
as taxes but as part of the purchase price.
Q: Distinguish between “Specific Tax” and
“Ad Valorem Tax”.
A: These relate to the tax rate in relation to the
object/s of taxation
a. Specific Tax – a tax of a fixed amount
imposed by the head or number or by some
other standard of weight or measurement.
It requires no assessment (valuation) other
than the listing or classification of the
objects to be taxed (e.g., taxes on distilled
spirits, wines, and fermented liquors; cigars
and cigarettes)
b. Ad Valorem Tax – a tax of a fixed
proportion of the value of the property with
respect to which the tax is assessed. It
requires the intervention of assessors or
appraisers to estimate the value of such
property before the amount due from each
taxpayer can be determined. The phrase
“ad valorem” means literally, “according to
value.” (e.g., real estate tax, excise tax on
UP LAW BOC PRE-WEEK
automobiles, non-essential goods such as
jewelry and perfumes, customs duties.
c. Mixed – a tax that has both the
characteristics of specific tax and ad
valorem tax
Q: What kinds of taxes are imposed in
relation to their purpose?
A:
a. General or Fiscal Tax – levied for the
general or ordinary purposes of the
Government, i.e., to raise revenue for
governmental needs (e.g., income tax,
VAT, and almost all taxes).
b. Special/Regulatory/Sumptuary Tax –
levied for special purposes, i.e., to achieve
some social or economic ends irrespective
of whether revenue is actually raised or not
(e.g., protective tariffs or customs duties on
imported goods to enable similar products
manufactured locally to compete with such
imports in the domestic market).
Q: Distinguish taxes as to their scope or
authority imposing the tax.
A:
a. National – taxes imposed by the national
government, through Congress and
administered by BIR or the BOC (e.g.,
national internal revenue taxes, customs
duties, and national taxes imposed by
laws).
b. Municipal or Local – taxes imposed by
local governments, through their respective
Sanggunians, and administered by the
local executive through the local treasurer
(e.g., business taxes that may be imposed
under the LGC, professional tax).
Q: Distinguish taxes as to graduation.
A:
a. Progressive – The rate of tax increases as
the tax base or bracket increases (e.g.,
income tax, estate tax, donor’s tax).
b. Regressive – The rate of tax decreases as
the tax base or bracket increases. There is
no regressive tax in the Philippines.
c. Proportionate – The rate of tax is based
on a fixed percentage of the amount of the
property, receipts or other basis to be taxed
(e.g., real estate tax, VAT, and other
percentage taxes).
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TAXATION LAW
d. Digressive – A fixed rate is imposed on a
certain amount and diminishes gradually
on sums below it. The tax rate in this case
is arbitrary because the increase in tax rate
is not proportionate to the increase of tax
base.
F. Double Taxation
Q: What is double taxation?
A: Double taxation means taxing the same
property twice when it should be taxed only
once; that is, “taxing the same person twice by
the same jurisdiction for the same thing.”
[Swedish Match Phils., Inc. v. Treasurer, G.R.
No. 181277 (2013)]
Q: Differentiate between double taxation in
the strict sense and in the broad sense.
A:
1. Strict sense (Direct Duplicate Taxation):
The same property must be taxed twice
when it should be taxed once. The
requisites are:
a. Both taxes must be imposed on the
same property or subject matter;
b. For the same purpose;
c. By the same taxing authority;
d. Within the same territory, jurisdiction or
taxing district;
e. During the same taxing period; and
f. Of the same kind or character of tax.
[Swedish Match Phils., Inc. v.
Treasurer]
2. Broad sense (Indirect Duplicate
Taxation): There is double taxation in the
broad sense or indirect duplicate taxation if
any of the elements for direct duplicate
taxation is absent.
Q: Is double taxation prohibited by the
Constitution?
A: There is no constitutional prohibition
against double taxation in the Philippines. It is
something not favored, but is permissible,
provided some other constitutional requirement
is not thereby violated. [Villanueva v. City of
Iloilo, G.R. No. L-26521 (1968)] Double
taxation in its narrow sense, therefore, is
undoubtedly unconstitutional but in the broader
sense is not necessarily so. [DE LEON, citing
26 R.C.L 264-265]. Where double taxation (in
UP LAW BOC PRE-WEEK
its narrow sense) occurs, the taxpayer may
seek relief under the uniformity rule or the
equal protection guarantee. [DE LEON, citing
84 C.J.S.138].
G. Escape from Taxation (Tax
Avoidance v. Tax Evasion)
Q: What is tax shifting?
A: Tax shifting is the act of transferring the
burden of a tax from the original payer or the
one on whom the tax was assessed or imposed
to someone else. What is transferred is not the
payment of the tax but the burden of the tax. All
indirect taxes may be shifted; direct taxes
cannot be shifted.
Q: Distinguish tax evasion from tax
avoidance.
A:
1. Tax Avoidance (Tax Minimization): The
exploitation by the taxpayer of legally
permissible alternative tax rates or
methods of assessing taxable property or
income in order to avoid or reduce tax
liability. It is politely called “tax
minimization” and is NOT punishable by
law.
a. Example: A person refrains from
engaging in some activity or enjoying
some privilege in order to avoid the
incidental taxation or to lower his tax
bracket for a taxable year.
2. Tax Evasion (Tax Dodging): the use by
the taxpayer of illegal or fraudulent means
to defeat or lessen the payment of a tax. It
is also known as “tax dodging.” It is
punishable by law.
a. Example: Deliberate failure to report a
taxable income or property; deliberate
reduction of income that has been
received; overstatement of expenses.
Q: What is tax transformation?
A: Tax transformation is a method of escape in
taxation whereby the manufacturer or producer
upon whom the tax has been imposed pays the
tax and endeavors to recoup himself by
improving his process of production thereby
turning out his units of products at a lower cost.
The taxpayer escapes by a transformation of
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TAXATION LAW
the tax into a gain through the medium of
production.
H. Tax Exemption
Q: What is a tax exemption?
A: Tax exemption is the freedom from a charge
or burden to which others are subjected.
[Greenfield v. Meer, G.R. No. 156, September
27, 1946].
It is a grant of immunity, express or implied (or
contractual) to particular persons or
corporations or to persons or corporations of a
particular class from a tax which persons or
corporations generally within the same state or
taxing district are obliged to pay. [PLDT Co., v.
Bacolod, G.R. No. 149179, July 15, 2005]
Q: What are the kinds of tax exemptions?
A: Tax exemptions may be classified as
follows:
1. As to Basis
a. Constitutional Exemptions - immunities
from taxation which originate from the
Constitution; or
b. Statutory Exemptions - those which
emanates from legislations
2. As to Form
a. Express - when exemptions are
expressly granted by the Constitution,
statutes, treaties, ordinances,
franchises, or contracts;
b. Implied - when particular persons,
properties, or excises are deemed
exempt as they fall outside the scope of
the taxing provision itself (DE LEON,
The Fundamentals of Taxation (2004),
p. 62); or
c. Contractual - Exemptions in
consideration of a contractual
agreement with the government
(VITUG & ACOSTA, Tax Law and
Jurisprudence, p. 35)
3. As to Extent
a. Total Exemptions - connotes absolute
immunity; or
b. Partial Exemptions - the collection of a
part of the tax is dispensed with (ABAN,
Law of Basic Taxation, p. 17)
UP LAW BOC PRE-WEEK
Q: What may be the grounds for tax
exemption?
A:
a. It may be based on a contract.
b. It may be based on some ground of public
policy.
c. It may be created in a treaty on grounds of
reciprocity or to lessen the rigors of
international or multiple taxation.
There is no tax exemption solely on the ground
of equity. [Davao Gulf Lumber Corp. v. CIR,
G.R. No. 117359 (1998)]
Q: What principles govern tax exemptions?
A: Tax exemptions, including its equivalent
provisions such as deductions, tax amnesty,
and tax condonations, shall be governed by the
following principles:
1. The relinquishment is never presumed.
[Floro Cement Corporation v. Gorospe,
G.R. No. L-46787, August 12, 1991].
2. Any claim for exemption from the tax
statute should be strictly construed against
the taxpayer [Luzon Stevedoring
Corporation v. CTA, G.R. No. L-3032, July
29, 1988]
3. Tax Exemptions are highly disfavored and
may almost be said to be directly contrary
to the intention of the tax laws. [Manila
Electric Company v. Vera, G.R. No. L-
29987, October 22, 1975]
4. He who claims tax exemptions must be
able to justify his claim or right. [CIR v. P.J.
Kiener Co., LTD, G.R. No. L-24754, July
18, 1975]
Q: Are tax exemptions revocable?
A: As a general rule, tax exemptions are
revocable because a grant of tax exemption is
an act of liberality which could be taken back
by the government. Since taxation is the rule
and exemption is the exception, the exemption
may thus be withdrawn at the pleasure of the
taxing authority.
The only exception to the general rule on
revocability of tax exemptions is where the
exemption was granted on private parties
based on material consideration of a mutual
nature, which then becomes contractual and is
thus covered by the non-impairment claim of
the Constitution. [Mactan Cebu International
Page 31 of 58
TAXATION LAW
Airport Authority v. Marcos, G.R. No., 120082,
September 11, 1996]
I. Compensation and Set-off
Q: May taxes be the subject of set-off or
compensation against an obligation by the
Government to the taxpayer?
A: General rule: Taxes cannot be subject to
compensation [South African Airways v. CIR,
G.R. No. 180356 (2010)]
Exception: If the claims against the
government have been recognized and an
amount has already been appropriated for that
purpose.
Where both claims have already become:
a. Due,
b. Demandable, and
c. Fully liquidated,
compensation takes place by operation of law
under Art. 1200 in relation to Articles 1279 and
1290 of the NCC, and both debts are
extinguished to the concurrent amount.
[Domingo v. Garlitos, G.R. No. L-18994 (1963)]
J. Construction and
Interpretation of Tax Laws
Q: When may a tax law be applied
retroactively?
A: Tax laws may be applied retroactively
provided it is expressly declared or it is
clearly the legislative intent (e.g., increase
taxes on income already earned) except when
retroactive application would be so harsh and
oppressive. [Republic v. Fernandez, G.R. No.
L-9141 (1956)]
Q: Why are tax exemptions strictly
construed against the taxpayer?
A: Taxation is the rule; exemption is the
exception. One who claims exemption must be
able to justify their claim or right thereto, by a
grant expressed in terms “too plain to be
mistaken and too categorical to be
misinterpreted.” If not expressly mentioned in
the law, it must at least be within its purview by
clear legislative intent. [Jaka Investments Corp.
v. CIR, G.R. No. 147629 (2010)]
UP LAW BOC
Tax exemptions are strictly construed against
the taxpayer, they being highly disfavored and
may almost be said “to be odious to the law.”
[Manila Electric Company v. Vera, supra]
K. Taxpayer’s Suit
Q: When may a taxpayer’s suit be allowed?
A: For a taxpayer’s suit to prosper, two
requisites must be met namely, (1) public funds
derived from taxation are disbursed by a
political subdivision or instrumentality and in
doing so, a law is violated or some irregularity
is committed; and (2) the petitioner is directly
affected by the alleged act. [LandBank of the
Philippines v. Cacayuran, G.R. No. 191667
(2013)]
L. Powers and Functions of the
CIR
Q: Can the CIR inquire into the bank
deposits of a taxpayer?
A: Yes. The Commissioner is authorized to
inquire into the bank deposits and other related
information held by financial institutions of:
1. A decedent to determine his gross estate;
2. Any taxpayer who has filed an application
for compromise of his tax liability by reason
of financial incapacity to pay his tax liability;
or
3. A specific taxpayer or taxpayers subject of
a request for the supply of tax information
from a foreign tax authority pursuant to an
international convention or agreement on
tax matters to which the Philippines is a
signatory or a party thereof: Provided, That
the information obtained from the banks
and other financial institutions may be used
by the BIP for tax assessment, verification,
audit and enforcement purposes. [Sec.
6(F), NIRC]
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INCOME TAX
A. Taxable Income
Q: What is taxable income?
A: Taxable income means the pertinent items
of gross income specified in the Tax Code, less
the deductions and/or personal and additional
exemptions, if any, authorized for such types of
income by the Tax Code or other special laws
[Sec. 31, NIRC]. It is synonymous to the term
“net income.”
Q: What is gross income?
A: Gross income refers to all income derived
from whatever source [Sec. 32, NIRC].
Q: Is income coming from illegal sources
subject to income tax?
A: Yes. The law imposes a tax on income from
any source whatever which means that it
includes income whether legal or illegal [Sec.
32(A), NIRC]. Consequently, the flow of wealth,
without any distinction as to the lawfulness of
its source, is subject to income tax. In sum, the
phrase “income from whatever source”
discloses a legislative policy to include all
income not expressly exempted within the
class of taxable income under the law.
Q: Distinguish gross income and net
income.
A: Gross income is the total income of a
taxpayer subject to tax. It includes the gains,
profits, and income derived from whatever
source, whether legal or illegal [Sec. 32(A),
NIRC]. It does not include income excluded by
law, or which are exempt from income tax [Sec.
32(B), NIRC]. Net income means gross
income less statutory deductions and
exemptions [Sec. 31, NIRC].
B. Fringe Benefits
Q: Who is legally required to pay an income
tax on fringe benefits?
A: The employer. The employer is constituted
as the withholding agent [R.R. No. 02-98, Sec.
2.78].
UP LAW BOC
C. De Minimis Benefits
Q: What are de minimis benefits?
A: De minimis benefits are facilities or
privileges furnished or offered by an employer
to his employees, which are not considered as
compensation subject to income tax and
consequently to withholding tax, if such
facilities or privileges are relatively small value
and are offered or furnished by the employer
merely as a means of promoting the health,
goodwill, contentment, and efficiency of his
employees. [R.R. No. 03-98, Sec. 2.33(C)]
Q: What are included in the term de minimis
benefits?
A: The following shall be considered as de
minimis benefits:
1. Monetized unused vacation leave credits of
private employees not exceeding 10 days
during the year;
2. Monetized value of vacation and sick leave
credits paid to government officials and
employees;
3. Medical cash allowance to dependents of
employees, not exceeding P750 per
employee per semester or P125 per month;
4. Rice subsidy pf P1,500 or 1 sack of 50 kg
rice per month amounting to not more than
P1,500;
5. Uniform and clothing allowance not
exceeding P5,000 per annum;
6. Actual medical assistance not exceeding
PP10,000 per annum;
7. Laundry allowance not exceeding P300 per
month;
8. Employees achievement awards, e.g., for
length of service or safety achievement,
which must be in the form of a tangible
personal property other than cash or gift
certificate, with an annual monetary value
not exceeding P10,000 received by the
employee under an established written
plan which does not discriminate in favor of
highly paid employees;
9. Gifts given during Christmas and major
anniversary celebrations not exceeding
P5,000 per employee per annum;
10. Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of
the basic minimum wage on a per region
basis;
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PRE-WEEK TAXATION LAW
11. Benefits received by an employee by virtue
of a collective bargaining agreement (CBA)
and productivity incentive schemes
combined do not exceed P10,000 per
employee per taxable year [R.R. No. 03-98,
as amended by R.R. No. 05-11, R.R. No.
01-15, and R.R. No. 11018, Sec. 2.33(C)].
Q: Is the list of de minimis benefits
exclusive?
A: Yes. All other benefits given by employers
which are not included in the list shall not be
considered as de minimis benefits and shall be
subject to income tax, as well as withholding
tax on compensation income. [R.R. No. 03-98,
as amended by R.R. No.05-11, Sec. 2.33 (C)].
Q: What is the tax treatment of the “de
minimis” benefits given to employees that
exceed the prescribed amount?
A: The de minimis benefits given in excess of
the prescribed amounts may be included as
part of “other benefits” excluded from gross
income as “13th month pay and other benefits”
subject to the P90,000 ceiling [Sec.
32(B)(7)(e)]. Any amount in excess of the
P90,000 ceiling shall be subject to income tax,
and consequently, to withholding tax on
compensation. [RMC No. 50-18].
D. Exclusions from Gross
Income
Q: What do exclusions from gross income
refer to?
A: Exclusions from gross income refer to
income received or earned but is not taxable as
income because it is exempted by law or by
treaty. Such tax-free income is not to be
included in the income tax return unless
information regarding it is specifically called for.
Q: What are the exclusions from gross
income under the Constitution?
A: Exclusions Under the Constitution Income
derived by the government or its political
subdivisions from the exercise of any essential
governmental function
Also, all assets and revenues of a non-stock,
non-profit private educational institution used
directly, actually and exclusively for private
UP LAW BOC
educational purposes shall be exempt from
taxation.
Q: What are the exclusions from gross
income under the Tax Code [Sec. 32(B),
NIRC]?
A: The following are the exclusions from gross
income under the Tax Code:
1. Proceeds of life insurance policies;
2. Amount received by insured as return of
premium;
3. Gifts, bequests, and devices;
4. Compensation for injuries and sickness;
5. Income exempt under treaty;
6. Retirement benefits, pensions, and
gratuities; and
a. Retirement benefits received under
R.A. No. 7641 and those received by
officials and employees of private
firms;
b. Any amount received by an official or
employee or by his heirs from the
employer as a consequence of
separation because of death sickness
or other physical disability or for any
cause beyond the control of the said
official or employee;
c. Provisions of any existing law to the
contrary;
d. Payments of benefits due or to become
due to any person residing in the
Philippines under the laws of the United
States administered by the United
States Veterans Administration; and
e. Benefits received from or enjoyed
under the SSS in accordance with the
provisions of R.A. No. 8282; and
Benefits received from the GSIS under
R.A. No. 829.
7. Miscellaneous items.
a. Income derived by Foreign
Government;
b. Income derived by the government or
its political subdivisions;
c. Prizes and awards made primarily in
recognition of religious,charitable,
scientific, educational, artistic, literary,
or civic achievement;
d. Prizes and awards in sports
Competition;
e. 13th month pay and other benefits;
f. GSIS, SSS, Medicare and other
contributions;
Page 34 of 58
PRE-WEEK TAXATION LAW
g. Gains from the sale of bonds,
debentures, or other certificate of
indebtedness; and
h. Gains from redemption of shares in
mutual fund.
Q: Distinguish between exclusion of
income and reduction of gross income.
A: The exclusion of income should not be
confused with the reduction of gross income by
the application of allowable deductions. While
exclusions are simply not taken into account in
determining gross income, deductions are
subtracted from gross income to arrive at net
income.
Q: Distinguish between exclusions,
deductions, and tax credit.
A: Exclusions from gross income refer to
flow of wealth to the taxpayer which are not
treated as part of gross income for purposes of
computing the taxpayer’s taxable income, due
to the following reasons: (1) it is exempted by
the Constitution or a statute; or (2) it does not
come within the definition of income.
Deductions are the amounts which the law
allows to be subtracted from gross income in
order to arrive at net income. Tax Credit refers
to amounts subtracted from the computed tax
in order to arrive at taxes payable.
Q: Distinguish between exclusions and
deductions from gross income.
A: Exclusions pertain to the computation of
gross income, while deductions pertain to the
computation of net income. Exclusions are
something received or earned by the taxpayer
which do not form part of gross income while
deductions are something spent or paid in
earning gross income.
E. Deductions
Q: What is a Deduction? / What do
deductions from gross income refer to?
A: Deductions are items or amounts authorized
by law to be subtracted from the pertinent items
of gross income to arrive at taxable income.
[Sec. 34, NIRC].
Deductions from income tax purposes partake
of the nature of tax exemptions; hence, if tax
UP LAW BOC PRE-WEEK TAXATION LAW

exemptions are to be strictly construed, then it

ITEMIZED
follows that deductions must also be strictly OSD
DEDUCTIONS
construed. [CIR v. Isabela Cultural Co., G.R.
No. 172231, February 12, 2007] Those allowed It is a fixed
by the NIRC to percentage
Q: On what type of income is a deduction be deducted deduction
NOT allowed? from gross without
A: No deductions are allowed on compensation As to income in regard to any
income arising from personal services nature computing for actual
rendered under an employer-employee taxable income expenditure,
relationship. [Sec. 34, NIRC]. subject to in lieu of
income tax. itemized
Q: How are deductions construed? deductions.
A: Since a deduction for income tax purposes
partakes of the nature of a tax exemption, then Based on Individuals:
it must also be construed strictly against the actual 40% of gross
taxpayer. [CIR v. Isabela Cultural Corp., G.R. expenditure sales or
No. 172231, February 12, 2007] As to gross
amount of receipts
Q: What are the types of deductions from deduction
gross income? Corpora-
A: There are four (4) types of deductions from tions: 40% of
gross income: gross income
1. Itemized deductions in Sec. 34(A) to (J)
and (M) available to all kinds of taxpayers Must be No need to
engaged in trade or business or practice of substantiated be
profession in the Philippines; As to
with sufficient substantiated
2. Optional standard deduction in Sec. 34(L) substan-
evidence such with evidence
available only to individual taxpayers tiation
as official
deriving business, professional, capital require-
receipts or
gains, and passive income not subject to ment
other adequate
final tax, or other income; records
3. Optional standard deduction available to
corporations under Sec. 34(L) of the NIRC All taxpayers All taxpayers
(introduced by R.A. No. 9504); and except NRA- except non-
4. The special deductions in Secs. 37 and 38 NETB and resident
of the NIRC, and in special laws like the NRFC aliens
BOI law (E.O. 226).
As to who
[Note: NRA- [Note: Hence,
may avail
Q: What are the forms of allowable NETB and NRA-ETBs
deductions under the NIRC? NRFC are are also NOT
A: The allowable deductions may be in the taxed on gross allowed to
form of: income] avail of this
1. Itemized deductions or option]
2. Optional standard deduction (OSD) [Sec.
34, NIRC].
Q: Absent an express selection, what kind
of deduction are taxpayers presumed to
Q: Differentiate itemized deductions from
have availed of?
OSD.
A: Itemized Deductions, unless they signify in
A: Itemized deductions and OSD are
their ITR the intention to elect the OSD. Such
distinguished as follows:
selection, when made in the return, shall be

Page 35 of 58
UP LAW BOC PRE-WEEK
irrevocable for the taxable year for which the
return is made. [R.R. No. 08-18, Sec.8]
Q: What are the itemized deductions
allowed under the NIRC?
A: The following are itemized deductions
allowed under Sec. 34 of the NIRC:
1. Expenses;
2. Interest;
3. Taxes;
4. Losses;
5. Bad Debts;
6. Depreciation;
7. Depletion of oil and gas wells and mines;
8. Charitable and other contributions;
9. Research and development; and
10. Pension trusts.
Q: What are the other allowable deductions
under special laws?
A: The following items are other allowable
deductions under special laws:
1. Special deductions for productivity bonus
and manpower training under the
Productivity Incentives Act of 1990;
2. Deductions for training and expenses of
qualified jewelry enterprises;
3. Deductions under the Adopt-a-School Act
of 1990
4. Deductions under Sec.4 of RA 9257 or the
Expanded Senior Citizens Act of 2003;
a. Deduction from gross income of private
establishments for 20% sales
discounts granted to senior citizens on
the sale of goods and/or services
b. Additional deduction from gross
income of private establishments of
15% of the total compensation paid to
senior citizens whose employment
continues for at least six (6) months
and whose annual taxable income
does not exceed the poverty level as
may be determined by NEDA. (Sec. 9,
R.R. No. 04-06).
5. Deductions under Sec. 5 of RA 9999 or
Free Legal Assistance Act of 2010;
a. A lawyer or professional partnerships
rendering actual free legal services
shall be entitled to an allowable
deduction from the gross income, the
amount that could have been collected
for the actual free legal services
rendered or up to 10% of the gross
Page 36 of 58
TAXATION LAW
income derived from the actual
performance of the legal profession,
whichever is lower. Provided, the
actual legal services contemplated
herein shall be exclusive of the
minimum 60-hour mandatory legal aid
services under Bar Matter No. 2012.
6. Deductions under the Sec. 8(A) of Magna
Carta for Disabled Persons;
a. Private entities that employ disabled
persons who meet the required skills of
qualifications, either as regular
employee, apprentice, or learner, shall
be entitled to an additional deduction
equivalent to 25% of the total amount
paid as salaries and wages to disabled
persons.
Q: What items are not deductible in
computing taxable income?
A: The following items are not deductible in
computing taxable income:
1. Personal, living, or family expenses;
2. Amount paid out for new buildings or for
permanent improvements, or betterment
made to increase the value of any property
or estate (capital expenditures);
3. Amount expended in restoring property or
in making good the exhaustion thereof
which an allowance has been made (major
repairs);
4. Premiums paid on any life insurance policy
covering the life of any officer or employee,
or any person financially interested in any
trade or business carried on by the
taxpayer, individual, or corporate, when the
taxpayer is directly or indirectly a
beneficiary under such policy [Sec. 36(A),
NIRC];
5. Losses from sales or exchanges of
property between related parties [Sec.
36(B), NIRC];
6. Expenses which constitutes bribes,
kickbacks, and other similar payments;
7. Non-deductible interest [Sec. 34 (B) (2)];
8. Non-deductible taxes [Sec. 34 (C) (1)]; and
9. Losses from wash sales of stocks or
securities [Sec. 38, NIRC].
Q: Which taxes are deductible?
A: The following taxes are deductible:
1. Import duties;
2. Business tax;
UP LAW BOC PRE-WEEK
3. Professional/occupation tax;
4. Privilege and excise tax;
5. Documentary Stamp Tax;
6. Motor vehicle registration fees;
7. Real property tax;
8. Electric energy consumption tax; and
9. Interest on delinquent taxes.
Q: Which taxes are non-deductible?
A: The following taxes are non-deductible:
1. Philippine income tax, except Fringe
Benefit Taxes; and
2. Income tax imposed by authority of any
foreign country, if taxpayer avails of the
Foreign Tax Credit (FTC).
However, when the taxpayer does NOT signify
his desire to avail of the tax credit for taxes of
foreign countries, the amount may be allowed
as a deduction from gross income of citizens
and domestic corporations subject to the
limitations set forth by law.
F. Income Tax on Individuals
Q: How are individual taxpayers classified?
A: Individual taxpayers may be:
1. Citizens:
a. Resident Citizens (RC); or
b. Nonresident Citizens (NRC);
2. Aliens:
a. Resident Aliens (RA); or
b. Nonresident Aliens (NRA);
i. Nonresident aliens engaged in
trade or business in the Philippines
(NRA-ETB); or
ii. Nonresident aliens not engaged in
trade or business in the Philippines
(NRA-NETB); or
3. Special class of individual employees.
Q: Who is a resident citizen?
A: A resident citizen is a Filipino citizen residing
in the Philippines [BANGGAWAN, Income
Taxation, p. 71]
Q: Who is a non-resident citizen?
A: The term “non-resident citizen” means:
1. A citizen of the Philippines who establishes
to the satisfaction of the Commissioner the
fact of his physical presence abroad with a
definite intention to reside therein;
Page 37 of 58
TAXATION LAW
2. A citizen of the Philippines who leaves the
Philippines during the taxable year to
reside abroad, either as an immigrant or for
employment on a permanent basis;
3. A citizen of the Philippines who works and
derives income from abroad and whose
employment thereat requires him to be
physically present abroad most of the time
during the taxable year; or
4. A citizen who has been previously
considered as non-resident citizen and
who arrives in the Philippines at any time
during the taxable year to reside
permanently in the Philippines shall
likewise be treated as a NRC for the
taxable year in which he arrives in the
Philippines with respect to his income
derived from sources abroad until the date
of his arrival in the Philippines. [Sec. 22(E),
NIRC]
Notes:
1. The intention of the taxpayer regarding the
nature of his stay within or outside the
Philippines shall determine his appropriate
residence classification. The taxpayer shall
submit to the CIR documentary proofs such
as visas, work contracts, and other
documents indicating such intention.
2. Absent such documentary proof, the length
of the stay of the taxpayer is considered.
a. If a taxpayer stays in the Philippines for
at least 183 days, he shall be
considered as a resident citizen.
b. If he stays in the Philippines for less
than 183 days, he shall be considered
as a non-resident citizen.
[BANGGAWAN, Income Taxation, p.
73]
Q: When is a Filipino employee considered
as nonresident?
A: The following Filipino employees shall be
considered as nonresidents when he or she is:
1. A permanent employee - one who leaves
the Philippines to reside abroad on a more
or less permanent basis, regardless if his
stay abroad is less than 183 days; and
2. A contractual employee - one who leaves
the Philippines on account of a contract of
employment which is renewed from time to
time within or during the taxable year under
such circumstances as to require him/her
UP LAW BOC PRE-WEEK TAXATION LAW

to be physically present abroad most of the SUMMARY OF REGULAR INCOME TAX

time during the taxable year (i.e., staying RULES FOR INDIVIDUALS (Sec. 3 and 4,
abroad for not less than 183 days during R.R. No. 11-18)
the taxable year) [R.R. No. 01-79]
On
what Tax
Q: Who is a resident alien? Taxpayer Rate
in- base
A: A resident alien is an individual who is not a
come
citizen of the Philippines but one who is a
resident thereof (Sec. 22(F), NIRC). An alien WI & Taxable Gradua-
may be considered a resident of the Philippines RC
WO Income ted rate of
for income tax purposes if: 0-35%;
1. He is actually present in the Philippines and WI Taxable unless
is not a mere transient or sojourner; NRC
Income qualified
2. He lives in the Philippines and has no and avails
definite intention as to his stay; or WI Taxable 8% option
3. He comes to the Philippines for a definite RA
Income
purpose of such a nature that an extended
stay may be necessary for its NRA- WI Taxable
accomplishment and to that end, the alien ETB Income
makes his home temporarily in the
Philippines [Sec. 5, R.R. No. 02-40] NRA- WI Gross 25%
NETB Income
Note: An alien who has acquired residence in
the Philippines may lose his status as a Special WI Gross 15%
resident alien when he abandons the same Alien
AND actually departs from the Philippines. Indivi-
Mere intention to change his residence is not duals
enough. [Sec. 6, R.R. No. 02-40].
Legend:
Q: Who is a nonresident alien? WI - Income from sources within the Philippines
A: A non-resident alien is an individual whose WO - Income from sources without the
residence is not within the Philippines and who Philippines
is not a citizen thereof [Sec. 22(G), NIRC]. A
non-resident alien individual may be: Q: What are the special classes of
1. Engaged in trade or business (ETB) in the individual aliens who enjoy preferential tax
Philippines - if his aggregate period of stay treatment under the NIRC?
in the Philippines exceeds 180 days during A: The following alien individuals employed by
any calendar year; or 1. Regional or Area Headquarters (RHQ) and
2. Not engaged in trade or business - If his Regional Operating Headquarters (ROHQ)
aggregate period of stay in the Philippines of Multinational Companies;
does not exceed 180 days for each 2. Offshore Banking Units (OBU); and
calendar year [Sec. 25 (A) (1), NIRC]. 3. Petroleum Service Contractor and
Subcontractor (PSCS)
Q: What income taxes may be taxed on
individuals? Shall enjoy a preferential 15% tax rate based
A: Regular income tax, Final withholding tax, on their gross income based on their income.
and Capital gains tax [Sec. 24 and 25, NIRC]. Provided, that, the same tax treatment shall
apply to Filipinos employed and occupying the
Q: How is an individual’s regular income tax same positions as those of aliens employed in
determined? RHQ, ROHQ, OBU, and PSCS. [Sec.25 (C) (D)
A: Individuals are subject to regular income tax (E), NIRC]
as follows:

Page 38 of 58
UP LAW BOC
Note: The preferential tax treatment provided in
the aforementioned subsections of Sec. 25
shall not be applicable to RHQs, ROHQs,
OBUs, or PSCSs registering with the Securities
and Exchange Commission (SEC) after
January 1, 2018. [Sec. 25 (F), NIRC].
G. Income from Dealings
Property
Q: What is the difference between “capital
asset” and “ordinary asset”?
A: The yardstick for determining whether a
property is a capital asset or ordinary asset is
its actual use. In the determination of whether
a piece of property is a capital asset or an
ordinary asset, a careful examination and
weighing of all circumstances revealed in each
case must be made. [BIR Ruling No. 212-07]
Q: What are the requirements to be
exempted from capital gains tax?
A: CGT shall not be imposed when the
following conditions are met:
1. Sale is made by natural persons;
2. What is sold or disposed of is their principal
residence;
3. The proceeds of the sale is fully utilized in
acquiring or constructing a new principal
residence within 18 calendar months from
the date of sale or disposition;
4. The Commissioner is duly notified by the
taxpayer within 30 days from the date of
sale or disposition of his intention to avail of
the tax exemption. [Sec. 24(D)(2), NIRC]
Q: What is the tax base in a taxable
disposition of real property classified as a
capital asset?
A: The FMV of the property received in
exchange and the FMV of the property
exchanged. [NIRC, Sec. 24(D) and Sec.
27(D)(5)]
PRE-WEEK TAXATION LAW
H. Passive Investment Income
Q: What is the tax treatment of a resident
citizen stockholder of a domestic
corporation who was distributed cash
dividends?
A: A final withholding tax for 10% upon the
in cash dividends actually or constructively
received.
Q: What is the tax treatment of a non-
resident alien engaged in trade or business
who is a stockholder of a domestic
corporation and was distributed cash
dividends?
A: A final withholding tax for 25% of the entire
income received from all sources within the
Philippines. [R.R. No. 02-08, as amended by
R.R. No. 11-18, Sec. 2.57.1 (A) (B) and (C)]
Q: What is the tax treatment of a domestic
corporation who is a stockholder of a
domestic corporation and was distributed
cash dividends?
A: Dividends received are not subject to tax.
[R.R. No. 02-98, as amended by R.R. No. 11-
18, Sec. 2.57.1 (D) (E) and (F)].
Q: What is the tax treatment of a non-
resident foreign corporation who is a
stockholder of a domestic corporation and
was distributed cash dividends?
A: A final withholding tax of 30%, but if under
the tax sparing rule, 15%. [R.R. No. 02-98, as
amended by R.R. No. 11-18, Sec. 2.57.1 (D)
(E) and (F)].
Under the tax sparing rule, a final withholding
tax at the rate of 15% (instead of 30%) is
imposed on the amount of cash and/or property
dividends received by a nonresident foreign
corporation (NRFC) from a domestic
corporation subject to the condition that the
country in which NRFC is domiciled shall allow
a credit against the tax due from the NRFC
taxes deemed to have been paid in the
Philippines equivalent to 20%. [NIRC, Sec.
28(B)(5)(b)]
Note: The tax-sparing credit operates on
dummy fictional or phantom taxes, being
considered as if paid by the foreign taxpaying
Page 39 of 58
UP LAW BOC
authority, the host country. [CIR v. Procter &
Gamble Philippines Manufacturing Corp., G.R.
No. 66838 (Resolution), (1991)]
Q: What are disguised dividends in income
taxation?
A: These are payments, usually for services,
made in the form of dividends in order to evade
the higher taxes imposed on gross income.
They are not dividends in legal contemplation
because they are not return from investments.
[DOMONDON - not in BEDA REVIEWER]
I. Annuities, Proceeds from Life
Insurance or Other Types of
Insurance
Q: Are the proceeds of insurance which
forms part of an employee’s income subject
to income tax?
A: No. They partake more of indemnity or
compensation rather than gain to the recipient.
Life insurance proceeds serve the same
purpose as non-taxable inheritance.
[DOMONDON, National taxation, p. 192]
J. Prizes and Awards
Q: Will prize money received abroad be
taxable in the Philippines?
A: Yes. For both individuals and corporations,
prizes and winnings derived from sources
without the Philippines are subject to regular
tax. [R.R. No 02-98, as amended by R.R. No.
11-18, Sec. 2.57.1]
Q: Will prize money qualify as exclusion
from gross income?
A: The following are excluded from gross
income:
1. Prizes and awards made primarily in
recognition of religious, charitable,
scientific, educational, artistic, literary, or
civic achievement, but only if:
a. The recipient was selected without any
action on his part to enter the contest
or proceeding; and
b. The recipient is not required to render
substantial future services as a
condition to receiving the prize or
award; and
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PRE-WEEK TAXATION LAW
2. All prizes and awards granted to athletes in
local and international sports competitions
and tournaments whether held in the
Philippines or abroad and sanctioned by
their national sports associations. [NIRC,
Sec. 32(B)(7)(d-e)]
Q: How may a taxpayer use or apply income
taxes paid on the prize money abroad when
he or she computes his or her income tax
liability in the Philippines?
A: The income taxes withheld and paid abroad
may be claimed either as a deduction from
gross income or as a tax credit.
K. Pensions, Retirement Benefit,
or Separation Pay
Q: Will pension received from abroad by a
Filipino balikbayan be taxable?
A: No. The following are excluded from gross
income:
1. Retirement benefits received under RA
4917;
2. Retirement benefits under RA 7641;
3. Terminal leave benefits;
4. Separation pay due to death, sickness, or
other disability or any other cause beyond
the control of the employee or the official
(e.g. retrenchment);
5. Foreign social security; retirement
gratuities, pensions, etc.;
6. Benefits due to residents under laws of the
US administered by the US Veterans
administration;
7. SSS benefits received in accordance with
RA 8282; and
8. GSIS benefits received under RA 8291.
[NIRC, Sec. 32 (B)(7)]
L. Tax on Co-ownerships
Q: How are co-ownerships taxed?
A: Co-ownerships are:
1. Not taxable when the activities are limited
merely to the preservation of the co-owned
property. But co-owners are liable for
income tax in their separate and individual
capacities;
2. Taxable when the income of the co-
ownership is invested by the co-owners in
business thereby creating an unregistered
UP LAW BOC PRE-WEEK
partnership [Ona v. CIR, G.R. No. L-19342,
May 25, 1972].
M. Tax on General Professional
Partnerships
Q: What is a General Professional
Partnership (GPP)?
A: A GPP is one formed by persons for the sole
purpose of exercising their common
profession, no part of income of which is
derived from engaging in any trade or business
[Sec. 22 (B), NIRC].
Under the Tax Code on income taxation, a
GPP is deemed to be no more than a mere
mechanism or flow-through entity in the
generation of income by, and the ultimate
distribution of such income to, respectively,
each of the individual partners [Tan v. Del
Rosario, Jr., G.R. No. 109289 & 109446,
October 3, 1994].
Q: How are GPPs taxed?
A: A GPP shall not be subject to income tax.
Persons engaging in business as partners in a
GPP shall be liable for income tax only in their
separate and individual capacities, with each
partner reporting as gross income his
distributive share, actually or constructively
received, in the net income of the partnership
[Sec. 26, NIRC].
N. Corporations Exempt from
Income Tax
Q: What Corporations are exempt from
income tax?
A: The tax exempt corporations under Sec. 30,
NIRC are:
1. Labor, agricultural or horticultural
organization – non-profit;
2. mutual savings bank or cooperative bank –
non-stock, non-profit, operated for mutual
purposes;
3. Beneficiary society, order, or association –
operating for the exclusive benefits of their
members; includes: fraternal organization
operating under the lodge system; or
mutual aid association or a nonstock
corporation organized by employees
Page 41 of 58
TAXATION LAW
providing life, sickness, accident, or other
benefits exclusively to the members;
4. Cemetery company – owned and operated
exclusively for the benefit of its members;
5. Non-stock corporation or association
organized and operated exclusively for
religious, charitable, scientific, athletic, or
cultural purposes or for the rehabilitation of
veterans, provided that no part of its
income or asset belong to or inure to the
benefit of any individual;
6. Business league, chamber of commerce,
or board of trade – Non-profit; no part of net
income inures to the benefit of an
individual;
7. Civic league or organization – Non-profit;
operating exclusively for the promotion of
social welfare;
8. Non-stock and non-profit educational
institutions;
9. Government educational institutions;
10. Organizations of a purely local character
whose income consists solely of
assessment, duties and fees collected from
their members to meet expenses; includes:
farmers’ or other mutual typhoon or fire
insurance company, mutual ditch or
irrigation company and mutual or
cooperative telephone company; and
11. Farmers’, fruit growers’, and like
association – whose primary function is to
market the product of their members.
Notwithstanding the provisions in the
preceding paragraphs, the income of the
foregoing organizations from (1) their
properties, real or personal, or from (2) their
activities conducted for profit regardless of the
disposition made of such income, shall be
subject to tax imposed under the NIRC.
O. Income Tax on Domestic
Corporations
Q: What income taxes may be taxed on
domestic corporations?
A: Domestic corporations may be subject to the
following income taxes:
1. Normal or regular corporate income tax
(NCIT/RCIT) [Sec. 27(A), Par. 1, NIRC];
2. Minimum corporate income tax (MCIT)
[Sec. 27(E), NIRC];
UP LAW BOC PRE-WEEK
3. Gross income tax (GIT) [Sec. 27 (A), Par.
4, NIRC];
4. Final income tax on passive income [Sec.
27 (D)(1) and (3)];
5. Capital gains tax (CGT) [Sec. 27(D)(2) and
(5), NIRC]; or
6. Improperly accumulated earnings tax
(IAET) [Sec. 29, NIRC].
Q: How is NCIT computed?
A: NCIT is computed at 30% of taxable income
derived during each taxable year from all
sources within and without the Philippines by a
domestic corporation [Sec. 27(A), Par. 1,
NIRC].
Q: What domestic corporations are subject
to MCIT?
A: The MCIT shall apply only to domestic
corporations subject to NCIT [Sec. 2.27 (E) (8)
R.R. 09-98].
Q: What domestic corporations are exempt
from MCIT?
A: The MCIT shall not be imposed upon the
following domestic corporations which are not
subject to NCIT: (PHFSR)
1. Domestic corporations operating as
Proprietary educational institutions subject
to tax at ten percent (10%) on their taxable
income (check the predominance test);
2. Domestic corporations engaged in Hospital
operations which are nonprofit subject to
tax at ten percent (10) % on their taxable
income;
3. Domestic Corporations engaged in
business as depositary banks under the
expanded Foreign currency deposit
system, otherwise known as Foreign
Currency Deposit Units (FCDUs);
4. Firms that are taxed under a Special
income tax regime such as those in
accordance with RA 7916 and 7227 (the
PEZA law and BCDA, respectively) [Sec.
2.27(E)(8) R.R. No. 09-98]; AND
5. Real Estate Investment Trust [Sec. 10,
R.A. No. 9856 or Real Estate Investment
Act of 2009]
Page 42 of 58
TAXATION LAW
Q: How is the MCIT applied when a
corporation is subject to both the regular
(normal) income tax system and special
income tax system?
A: The MCIT shall apply only on operations
covered by the regular income tax system.
[Sec. 2.27, par. (E) (1), par. 3, R.R. No. 9-98].
Q: When will a corporation begin to be
subject to MCIT?
A: A corporation becomes subject to the MCIT
beginning the 4th taxable year immediately
following the taxable year in which such
corporation commenced its business operation
[Sec. 2.27, par. (E) (1), par. 3, R.R. No. 9-98].
Q: When is a corporation considered to
have commenced business operations?
A: For purposes of the MCIT, the taxable year
in which business operations commenced shall
be the year in which the domestic corporation
registered with the BIR. [Sec. 2.27, par. (E) (5),
R.R. No. 9-98].
Q: When will a corporation be liable to the
MCIT instead of NCIT?
A: The corporation shall be liable to the MCIT
whenever:
1. The corporation has zero or negative
taxable income; or
2. The amount of the MCIT is greater than the
NCIT due from such corporation [Sec. 2.27,
par. (E) (1), par. 3, R.R. No. 9-98].
Q: How is MCIT computed?
A: MCIT is computed at 2% of the gross
income of the corporation as of the end of the
taxable year [Sec. 27(E)(1), NIRC].
Note: For the purposes of applying the MCIT,
the term “gross income” shall mean gross sales
less sales returns, discounts, and allowances
and costs of goods sold. In the case of
taxpayers engaged in the sale of service,
“gross income” means gross receipts less
sales returns, allowances, discounts, and costs
of services [Sec. 27(E)(4)(a), NIRC].
Q: What is the “Improperly Accumulated
Earnings Tax” (IAET)?
A: IAET, or formerly termed as “tax on
improper accumulation of surplus”, is
essentially a penalty tax designed to compel
UP LAW BOC PRE-WEEK
corporations to distribute earnings so that the
said earnings by shareholders could, in turn, be
taxed [Cynamid Philippines, Inc. v. CA, G.R.
No. 108067, January 20, 2000].
Q: What corporations are subject to IAET?
A: IAET is imposed on improperly accumulated
taxable income earned starting January 1,
1998 by domestic corporations which are
closely-held corporations.
Closely-held corporations are those
corporations at least 50% in value of the
outstanding capital stock or at least 50% of the
total combined voting power of all classes of
stocks entitled to vote is owned directly or
indirectly by or for not more than 20 individuals.
Domestic corporations not falling under the
aforesaid definition are called publicly-held
corporations. [Sec. 4, R.R. No. 02-01]
Q: What corporations are exempt from the
imposition of IAET?
A: IAET shall not apply to: (BIP-TENG)
1. Banks and other non-bank financial
intermediaries;
2. Insurance companies;
3. Publicly-held corporations
4. Taxable partnerships
5. General professional partnerships
6. Non-taxable joint ventures; and
7. Enterprises duly registered with the PEZA
under RA 7916 and enterprises registered
pursuant to the BCDA under RA 7227, as
well as other enterprises duly registered
under special economic zones declared by
law which enjoy payment of special tax rate
on their registered operations or activities
in lieu of other taxes, national or local [Sec.
4, par.1, R.R. No. 02-01]
Q: How is IAET computed?
A: IAET is equal to 10% of the improperly
accumulated taxable income. The term
“improperly accumulated taxable income”
means taxable income adjusted by:
1. Income exempt from tax;
2. Income excluded from gross income;
3. Income subject to final tax; and
4. The amount of net operating loss carry-
over deducted;
And reduced by the sum of:
Page 43 of 58
TAXATION LAW
1. Dividends actually or constructively paid;
and
2. Income tax paid for the taxable year (Sec.
29 (A)and (D), NIRC).
P. International carriers
Q: How are international common carriers
classified?
A: International carriers are classified as
follows:
1. International Air Carrier - foreign airline
corporation doing business in the
Philippines having been granted landing
rights in any Philippine port to perform
international air transportation services
anywhere in the world. It may be:
a. An on-line carrier - having or
maintaining flight operations to and
from the Philippines; or
b. An off-line carrier - having no flight
operations to and from the Philippines;
or
2. International sea carrier - foreign shipping
corporation doing business in the
Philippines, having touched or intention of
touching any Philippine port. It may be:
a. An on-line carrier - performing
international sea transportation
services/a activities from the
Philippines to anywhere in the world
and vice versa; or
b. An off-line carrier - maintaining
business establishment, agent, or
representative office in the Philippines
for the sale of owned tickets/passage
documents or tickets/passage
documents of other shipping
companies, which shipping companies
operate without touching any Philippine
port [Sec. 2, RR No. 15-13].
Q: How are on-line international common
carriers taxed?
A: International carriers doing business in the
Philippines shall pay a tax of two and one-half
percent (2 ½%) on its “Gross Philippine
Billings” [Sec. 28 (A)(3)].
All items of income derived by international
carriers do not form part of Gross Philippine
Billings shall be subject to tax under the
UP LAW BOC PRE-WEEK
pertinent provisions of the NIRC, as amended
[Sec. 2, RR No. 15-13].
Q: How are off-line international common
carriers taxed?
A: An off-line international carrier having
branch/office or a sales agent in the Philippines
which sells passage, documents for
compensation, or commission to cover off-line
flights/voyages of its principal or head office, or
for other airlines/sea carriers covering
flights/voyages originating from Philippine
ports or off-line flights/voyages, is not
considered engaged in business the
Philippines and is, therefore not subject to
Gross Philippine Billings Tax provided for in
Sec. 28 (A) (3) of NIRC. Nonetheless, an off-
line international carrier shall be subject to
regular rate of income tax under Sec. 28 (A) (1)
of the NIRC based on its taxable income from
sources within the Philippines [Sec. 4.3, R.R.
No. 15-13].
TAXATION LAW 2
VALUE-ADDED TAX
Q: What is value-added tax?
A: Value-added tax (VAT) is a tax on
consumption levied on the sale of goods and
services in the Philippines. It is imposed upon
(1) any person who, in the course of trade or
business (a) sells, barters, exchanges, leases
goods or properties or (b) renders services,
and (2) any person who, whether or not in the
course of trade or business, imports goods
[NIRC, Sec. 105].
Q: What are the characteristics of VAT?
A: The characteristics of VAT are as follows:
1. It is a tax imposed on the value added to
goods, properties, or services of a
taxpayer;
2. It is a transparent form of sales tax imposed
on the taxable sale, barter, or exchange of
goods, properties or services;
3. It is a broad-based tax on consumption
imposed on all stages of taxable sale but
the tax burden rests with the final consumer
Page 44 of 58
TAXATION LAW
who consumes the goods, properties. or
services;
4. It is an indirect tax;
5. It is computed through "tax credit method"
or "invoice method" wherein the input tax
shifted by the sellers to the buyer is
credited against the buyer’s output taxes
when he in turn sells the taxable goods,
properties, or services [NIRC, Sec. 105 and
Sec. 170 (A)];
6. It follows the "destination principle/cross-
border doctrine" [Commissioner of Internal
Revenue v. Toshiba Information
Equipment (PHL) Inc. G.R. No 150154,
August 6, 2005]
Q: What is the concept of "impact" and
"incidence" of taxation in relation to
indirect taxation?
A: Impact of taxation is that point on which a
tax is originally imposed. The point of impact
lies with the statutory tax payer or the subject
of the tax. Incidence is that point on which the
tax burden finally rests or settles down. The
impact is the initial phenomenon, the shifting is
the intermediate process, and the incidence is
the result [De Leon, Fundamentals of Taxation,
p 64].
Q: What does “in the course of trade or
business” mean?
A: The phrase “in the course of trade or
business” means the regular conduct or pursuit
of a commercial or an economic activity,
including transactions incidental thereto, by
any person regardless of whether or not the
person engaged therein is a nonstock,
nonprofit private organization (irrespective of
the disposition of its net income and whether or
not it sells exclusively to members or their
guests), or government entity. For non-resident
foreign persons, the services they rendered in
the Philippines shall be considered as being in
the course of trade or business, the rule of
regularity to the contrary notwithstanding
[NIRC, Sec. 105].
Q: How are incidental transactions treated
for VAT purposes?
A: Incidental transactions are subject to VAT.
The Court held that a reading of Section 105 of
the Tax Code would show that a transaction “in
the course of trade or business” includes
UP LAW BOC PRE-WEEK
“transactions incidental thereto.” [Mindanao II
Geothermal Partnership vs CIR, G.R. No.
193301, March 11, 2013]
Q: What is the Destination Principle/Cross-
Border Doctrine in relation to VAT?
A: The Destination Principle or Cross-Border
Doctrine provides that goods and services are
taxed only in the country where these are
consumed [Atlas Consolidated Mining and
Development Corp. v. CIR, G.R. No. 141104 &
148763, June 8, 2007].
Q: What transactions are subject to VAT
even if not made in the course of trade or
business?
A: As exceptions to the rule of regularity, the
following transactions shall be subject to VAT
although not made in the course of trade or
business:
1. Services rendered in the Philippines by
non-resident foreign persons shall be
considered as being rendered in the course
of trade or business [NIRC, Sec 105]; and
2. Importation of goods [NIRC, Sec 105].
There shall be levied, assessed and
collected every importation of goods a VAT
equivalent to 12% [NIRC, Sec 107 (A)]
A. VAT on Sale of Properties
Q: What does the term “goods or
properties” mean?
A: The term “goods and properties” shall mean
all tangible and intangible objects which are
capable of pecuniary estimation and shall
include:
1. Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business;
2. The right or the privilege to use patent,
copyright, design or model, plan, secret
formula or process, goodwill, trademark,
trade brand or other like property or right;
3. The right or the privilege to use in the
Philippines of any industrial, commercial or
scientific equipment;
4. The right or the privilege to use motion
picture films, tapes and discs; and
5. Radio, television, satellite transmission and
cable television time [NIRC, Sec. 106
(A)(1)].
Page 45 of 58
TAXATION LAW
Q: What is meant by “gross selling price”?
A: The term “gross selling price” means the
total amount of money or its equivalent which
the purchaser pays or is obligated to pay to the
seller in consideration of the sale, barter or
exchange of the goods or properties, excluding
VAT. The excise tax, if any, on such goods or
properties shall form part of the gross selling
price. In case of sale, barter or exchange of real
property, gross selling price shall mean the
consideration stated in the sales document or
the fair market value (whichever is higher of the
zonal value or the fair market value as shown
in the schedule of values of the provincial and
city assessors), whichever is higher [R.R. No.
16-05, Sec 4.106-4].
Q: What are the allowable deductions from
the gross selling price?
A: The following shall be allowed as deduction
from gross selling price:
1. Discounts determined and granted at the
time of sale, which are expressly indicated
in the invoice, the amount thereof forming
part of the gross sales duly recorded in the
books of accounts; and
2. Sales returns and allowances for which
proper credit or refund was made during
the month or quarter to the buyer for sales
previously recorded as taxable sales [R.R.
No. 16-05, Sec 4.106-9, NIRC, Sec. 106
(D)].
Q: What transactions are deemed as sale?
A: The following transactions shall be deemed
sale:
1. Transfer, use or consumption not in the
course of business of goods or properties
originally intended for sale or for use in the
course of business;
2. Distribution or transfer to:
a. Shareholders or investors as share in
the profits of the VAT- registered
persons; or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not
made within sixty (60) days following the
date such goods were consigned; and
4. Retirement from or cessation of business
with respect to inventories of taxable goods
existing as of such retirement or cessation.
[NIRC, Sec 106 (B); R.R. No. 16-05, Sec
4.106-7]
UP LAW BOC PRE-WEEK
Q: When are “transactions deemed sale”
subject to VAT?
A: Before considering whether the transaction
is deemed sale, it must first be determined
whether the sale was in the ordinary course of
trade or business. Even if the transact ion was
"deemed sale," if it was not done in the ordinary
course of trade or business, still the transaction
is not subject to VAT [Commissioner of Internal
Revenue v. Magsaysay Lines, Inc., G.R. No.
146984, July 28, 2006].
Q: What is the tax base of VAT on
transactions deemed ale?
A: For transactions deemed sale, the output
tax shall be based on the market value of the
goods deemed sold as of the time of the
occurrence of the transactions deemed sale.
However, in the case of retirement or cessation
of business, the tax base shall be the
acquisition cost or the current market price of
the goods or properties, whichever is lower.
[R.R. No. 16-05, Sec 4.106-7]
1. Zero-rated Sale of Goods
Q: What is the nature of a “zero-rated sale”?
A: A zero-rated sale of goods or properties and
service by a VAT-registered person is a taxable
transaction for VAT purposes but the sale does
not result in any output tax. However, the input
tax on purchase of goods, properties or
services related to such zero-rated sale shall
be available as tax credit or refund in
accordance with these Regulations [R.R. No.
16-05, Sec. 4.106-5 and 4.108-5].
Q: Distinguish “automatically zero-rated
sales” from “effectively zero-rated sales.”
A: Although both are taxable and similar in
effect, zero-rated transactions differ from
effectively zero-rated transactions as to their
source. Zero-rated transactions generally refer
to the export sale of goods and supply of
services. Effectively zero-rated transactions,
however, refer to the sale of goods or supply of
services to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a
signatory effectively subjects such transactions
to a zero rate. [CIR v. Seagate Technology
Philippines, G.R. No. 15366, February 11,
2005]
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TAXATION LAW
Q: Distinguish “exempt transaction” from
“exempt parties.”
A: An exempt transaction, on the one hand,
involves goods or services which, by their
nature, are specifically listed in and expressly
exempted from the VAT under the Tax Code,
without regard to the tax status – VAT-exempt
or not – of the party to the transactions. Since
such transactions are not subject to VAT, the
sellers cannot pass on any output VAT to the
purchasers of goods, properties, or services,
and they may not claim tax credit/refund of the
input VAT they had paid thereon. An exempt
party, on the other hand, is a person or entity
granted VAT exemption under the Tax Code, a
special law or an international agreement to
which the Philippines is a signatory, and by
virtue of which its taxable transactions become
exempt from VAT. [CIR v. Toshiba Information
Equipment (Phils.), Inc., 466 SCRA 211, 2005]
Q: When are sales to another producer or to
an export trader considered as export
sales?
A: Generally, sales of export products to
another producer or to an export trader shall
only be deemed export sales when actually
exported by the latter, as evidenced by landing
certificates or similar commercial documents
[R.R. No. 16-05, as amended by R.R. No. 13-
18, Sec. 4.106-5, Par. 2].
Q: When are sales to another producer or to
an export trader considered as
constructively exported?
A: Without actual exportation the following
shall be considered constructively exported for
purposes of these provisions:
1. sales to bonded manufacturing
warehouses of export-oriented
manufacturers;
2. sales to export processing zones;
3. sales to registered export traders operating
bonded trading warehouses supplying raw
materials in the manufacture of export
products under guidelines to be set by the
Board in consultation with the Bureau of
Internal Revenue (BIR) and the Bureau of
Customs (BOC);
4. sales to diplomatic missions and other
agencies and/or instrumentalities granted
tax immunities, of locally manufactured,
assembled or repacked products whether
UP LAW BOC PRE-WEEK
paid for in foreign currency or not [R.R. No.
16-05, as amended by R.R. No. 13-18,
Sec. 4.106-5, Par. 2].
B. VAT on Services
Q: What is meant by sale or exchange of
services?
A: The phrase “sale or exchange of services”
means the performance of all kinds of services
in the Philippines for others for a fee,
remuneration or consideration [NIRC, Sec. 108
(A)].
Q: What is meant by “service”?
A: “Service” has been defined as the art of
doing something useful for a person or
company for a fee or useful labor or work
rendered or to be rendered to another for a fee
[CIR v. American Express, Int’l., Inc., G.R. No.
152609, June 29, 2005].
Q: When is the lease of properties subject
to VAT?
A: The lease of properties shall be subject to
VAT irrespective of the place where the
contract of lease or licensing agreement was
executed if the property is leased or used in the
Philippines [NIRC, Sec. 108].
Q: What is the tax base of the VAT on sale
of service and use or lease or properties?
A: There shall be levied, assessed and
collected, a VAT equivalent to twelve percent
(12%) of gross receipts derived from the sale
or exchange of services, including the use or
lease of properties [NIRC, Sec. 108].
Q: What is meant by “gross receipts”?
A: It refers to the total amount of money or its
equivalent representing the contract price,
compensation, service fee, rental or royalty,
including the amount charged for materials
supplied with the services and deposits applied
as payments for services rendered and
advance payments actually or constructively
received during the taxable period for the
services performed or to be performed for
another person, excluding VAT [NIRC, Sec
108; R.R. No. 16-05, Sec. 4.108-4].
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TAXATION LAW
1. Zero-rated Sale of Services
Q: What are the instances of zero-rated
services?
A: The following are zero-rated services:
1. Processing, manufacturing or repacking
goods for other persons doing business
outside the Philippines which goods are
subsequently exported, where the services
are paid for in acceptable foreign currency
and accounted for in accordance with the
rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
2. Services other than those mentioned in the
preceding paragraph rendered to a person
engaged in business conducted outside
the Philippines or to a nonresident person
not engaged in business who is outside the
Philippines when the services are
performed, the consideration for which is
paid for in acceptable foreign currency and
accounted for in accordance with the rules
and regulations of the Bangko Sentral ng
Pilipinas (BSP);
3. Services rendered to persons or entities
whose exemption under special laws or
international agreements to which the
Philippines is a signatory effectively
subjects the supply of such services to zero
percent (0%) rate;
4. Services rendered to persons engaged in
international shipping or international air
transport operations, including leases of
property for use thereof: Provided, That
these services shall be exclusive for
international shipping or air transport
operations;
5. Services performed by subcontractors
and/or contractors in processing,
converting, or manufacturing goods for an
enterprise whose export sales exceed
seventy percent (70%) of total annual
production;
6. Transport of passengers and cargo by
domestic air or sea vessels from the
Philippines to a foreign country; and
7. Sale of power or fuel generated through
renewable sources of energy such as, but
not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy,
and other emerging energy sources using
technologies such as fuel cells and
hydrogen fuels. [NIRC, Sec. 108 (B)]
UP LAW BOC PRE-WEEK
Q: What is the “Enhanced VAT Refund
System”?
A: The “Enhanced VAT Refund System” is a
VAT refund system that grants and pays
refunds of creditable input tax within ninety (90)
days from the filing of the VAT refund
application with the Bureau. The 90-day period
to process and decide shall start from the filing
of the application/claim for refund up to the
release of the payment of the VAT refund [R.R.
No. 16-05, as amended by R.R. No. 13-18.
Sec. 4. 106-5 and 4. 108-5].
Q: On what claims or applications for
refund is the Enhanced VAT Refund System
effective?
A: All applications filed from January 1, 2018
shall be processed and decided within ninety
(90) days from the filing of the VAT refund
application [R.R. No, 16-05, as amended by
R.R. No. 13-18. Sec. 4. 106-5 and 4. 108-5].
Q: What is the effect of a successful
establishment and implementation of the
Enhanced VAT Refund System?
A: Upon the successful establishment and
implementation of the Enhanced VAT Refund
System AND the full payment in cash by
December 31, 2019 of all pending VAT refund
claims as of December 31, 2017, the following
sales subject to 0% VAT shall be subject to
12% VAT:
1. Zero Rated Sale of Goods or Properties:
a. The sale of raw materials or packaging
materials to a nonresident buyer for
delivery to a resident local export-
oriented enterprise to be used in
manufacturing, processing, packing or
repacking in the Philippines of the said
buyer’s goods, paid for in acceptable
foreign currency, and accounted for in
accordance with the rules and
regulations of the BSP;
b. The sale of raw materials or packaging
materials to an export-oriented
enterprise whose export sales exceed
seventy percent (70%) of total annual
production; and
c. Transactions considered export sales
under E.O. No. 226, otherwise known
as the Omnibus Investments Code of
1987, and other special laws;
2. Zero-Rated Sale of Service
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TAXATION LAW
a. Processing, manufacturing or
repacking of goods for other persons
doing business outside the Philippines,
which goods are subsequently
exported and paid for in acceptable
foreign currency and accounted for in
accordance with the rules and
regulations of the BSP; and
b. Services performed by subcontractors
and/or contractors in processing,
converting, or manufacturing goods for
an enterprise whose export sales
exceed seventy percent (70%) of the
total annual production [R.R. No. 13-
18. Sec. 2].
Q: What are the requisites that for purposes
of zero-rating under Section 108(B)(2) of the
NIRC?
A: Supreme Court ruled that for purposes of
zero-rating under Section 108(B)(2) of the
NIRC, there must be sufficient proof of two
components, showing not only that the clients
are foreign corporations, but that they are also
not doing business in the Philippines. [CIR v.
Deutsche Knowledge Services Pte. Ltd., G.R.
No. 234445, July 15, 2020]
C. VAT Exempt Transactions
Q: What are VAT exempt transactions?
A: “VAT-exempt transactions” refer to the sale
of goods or properties and/or services and the
use or lease of properties that is not subject to
VAT (output tax) and the seller is not allowed
any tax credit of VAT (input tax) on purchases
[R.R. No. 16-05, Sec. 4.109-1 (A)]
Q: Distinguish a “zero-rated sale
transaction” from a “VAT-exempt
transaction”.
A: While the zero rating and the exemption are
computationally the same, they actually differ
in several aspects, to wit:
1. A zero-rated sale is a taxable transaction
but does not result in an output tax while an
exempted transaction is not subject to the
output tax;
2. The input VAT on the purchases of a VAT-
registered person with zero-rated sales
may be allowed as tax credits or refunded
while the seller in an exempt transaction is
UP LAW BOC
not entitled to any input tax on his
purchases despite the issuance of a VAT
invoice or receipt.
3. Persons engaged in transactions which are
zero-rated, being subject to VAT, are
required to register while registration is
optional for VAT-exempt persons. [CIR v.
Cebu Toyo Corporation, 451 SCRA 447,
2005]
1. Sale or importation of
agricultural and marine food
products in their original state
and certain kinds of livestock,
poultry, breeding stock and
genetic materials
Q: How are sales of lechong manok treated
for VAT Purposes?
A: The sale of lechong manok or roasted
chicken is exempt from VAT as provided under
Section 109 (A) of the NIRC. Roasted chicken
is an agricultural product in its original state
which has undergone the simple process of
roasting when sold to customers. Such
process, in the absence of applying
preservatives, additives, or coloring has been
held to be within the exemption. Section 109
(A) expressly states that products classified
under this paragraph shall be considered in
their original state even if they have undergone
the simple processes of preparation or
preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking or
stripping. [VAT-Ruling No. 009-07]
2. Sale of certain Real Estate
Q: Which sales of real property are exempt
from VAT?
A: The following sale of real property are
exempt from VAT:
1. Sale of real properties not primarily held for
sale to customers or held for lease in the
ordinary course of trade or business;
2. Sale of real property utilized for socialized
housing as defined by R.A. No. 7279; and
3. Beginning January 1, 2021, sale of house
and lot, and other residential dwellings with
selling price of not more than two million
pesos (P2,000,000) adjusted to its present
values using the Consumer Price Index, as
Page 49 of 58
PRE-WEEK TAXATION LAW
published by the Philippine Statistics
Authority (PSA).
Note: RR No. 8-2021 now clarifies that since
the VAT-exempt threshold has been adjusted
to P3,199,200 from January 1, 2012 up to
December 31, 2020, the VAT-exempt
threshold under the TRAIN Law of P2,000,000
for sale of house and lot and other residential
dwellings should also be adjusted to
P3,199,200 beginning January 1, 2021. It
should also be noted that, beginning January
1, 2021, the sale of a residential lot is no longer
exempt regardless of value.
3. Lease of residential unit and
Association Dues
Q: Explain the threshold for lease of
residential units
A: The following lease contracts are exempt
from VAT
1. Monthly rental ≤ P15K → EXEMPT
2. P15,000 < Monthly rental ≤ P3,000,000
annually → 3% percentage tax
3. P3,000,000 < Monthly rental → 12% VAT
Note: the provision only considers monthly
rentals, regardless of the aggregate rentals
received by the lessor during the year.
Q: How are association dues treated for
VAT purposes?
A: Association dues, membership fees, and
other assessments/charges by condominium
corporations do not arise from transactions
involving the sale, barter, or exchange of goods
or property. Nor are they generated by the
performance of services. As such, they are not
subject to VAT. [BIR vs First E-Bank Tower
Condominium Corp. G.R. Nos. 215801 and
218924, Jan. 15, 2020]
D. Refund or Tax Credit of
Excess Input Tax
Q: What are the requisites for the
entitlement to a tax refund or credit of
excess input VAT attributable to zero-
rated?
A: Under Section 4.112-1 (a) of Revenue
Regu1ations No. (RR) 16- 05, otherwise known
UP LAW BOC PRE-WEEK
as the Consolidated VAT Regulations of 2005 ,
in relation to Section 112 of the Tax Code , a
claimant' s entitlement to a tax refund or credit
of excess input VAT attributable to zero-rated
sales hinges upon the following requisites : "(1)
the taxpayer must be VAT-registered; (2) the
taxpayer must be engaged in sales which are
zero-rated or effectively zero-rated; (3) the
claim must be filed within two years after the
close of the taxable quarter when such sales
were made; and (4) the creditable input tax due
or paid must be attributable to such sales,
except the transitional input tax, to the extent
that such input tax has not been applied
against the output tax." [CIR v. Deutsche
Knowledge Services Pte. Ltd., G.R. No.
234445, July 15, 2020]
Q: What are the rules on the period for filing
the administrative and judicial claims for
VAT? (TRAIN LAW)
A:
1. Two-year prescriptive period
(Administrative claim)
a. It is only the administrative claim that
must be filed within the two-year
prescriptive period. (Aichi)
b. The proper reckoning date for the two-
year prescriptive period is the close of
the taxable quarter when the relevant
sales were made. (San Roque) Not the
date when the payment was made (cf
Aichi)
c. The BIR has 90 days within which to
rule on the claim. In case of failure of
the BIR to rule within 90 days, VAT
refund claim may still continue to be
processed administratively provided
that the BIR official, agent, or employee
who was found to have deliberately
caused the delay in the processing of
the VAT refund claimed may be
subjected to penalties
2. 90 + 30 day period (Judicial claim)
a. The taxpayer can file the judicial claim
within thirty days after the
Commissioner denies the claim
b. Failure to comply with the 30-day
period to appeal will result in dismissal
by the CTA.
These rules apply ONLY to claims for credit or
refund of input tax. Rules under Secs. 204[C]
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TAXATION LAW
and 229 cover erroneous payments or illegal
collections and NOT refund of unutilized input
VAT. The reckoning date of Sec. 229 is the
date of payment while in Sec. 112[A], the
period is “within 2 years after the close of the
taxable quarter when the sales were made.”
Q: When should monthly VAT be filed and
paid?
A: The monthly VAT Declarations (BIR Form
2550M) of taxpayers whether large or non-
large shall be filed and the taxes paid not later
than the 20th day following the end of each
month [R.R. No. 16-05, as amended by R.R.
No. 13-18. Sec. 4. 114-1(A)].
Note: Beginning January 1, 2023, the filing and
payment required under the Tax Code shall be
done within twenty-five (25) days following the
close of each taxable quarter [R.R. No. 16-05,
as amended by R.R. No. 13-18. Sec. 4. 114-
1(A)].
Q: When should VAT returns be filed?
A: Quarterly returns for every person liable to
pay for VAT filed 25 days following the close of
the taxable quarter. For VAT-registered
persons, they must pay VAT on a monthly
basis on the 20th day following the end of the
month. [RR 16-2005]
DONOR’S TAX
Q: What is donor’s tax?
A: A donor’s tax is levied, assessed, collected
and paid upon the transfer by any person,
resident or nonresident, of the property by gift.
[Sec. 98(A), NIRC]. It shall apply whether the
transfer is in trust or otherwise, whether the gift
is direct or indirect, and whether the property is
real or personal, tangible or intangible. [Sec.
98(B), NIRC]
It is a tax on donations. Thus, it is a tax on –
1. An act of the donor disposing gratuitously
of a thing/right in favor of a donee; and
2. Sales, exchanges or other transfers of
properties, other than real property
(defined in Sec. 24(D)) classified as capital
asset within the Philippines, for less than
UP LAW BOC PRE-WEEK
an adequate and full consideration in
money or money’s worth. [Sec. 100, NIRC]
Q: When is donor’s tax applied?
A: The donor's tax shall not apply unless and
until there is a completed gift. The transfer of
property by gift is perfected from the moment
the donor knows of the acceptance by the
donee; it is completed by delivery, either
actually or constructively. Also, it is a
completed gift if the transferor divests himself
absolutely of control over the property donated
(i.e., irrevocable transfer of corpus and/or
irrevocable designation of beneficiary).
If the donation is void, the donor will not be
liable for donor’s tax because a void/invalid gift
is never a completed gift. [Rev. Reg. No. 12-
18, Sec. 12]
Q: When is a donation considered
complete?
A: A gift is considered incomplete if the donor
has reserved powers. It becomes complete
when:
1. the donor renounces the power; or
2. His right to exercise the reserved power
ceases for any cause other than the
donor’s death.
Q: What is the rate of donor’s tax?
A: The donor's tax for each calendar year shall
be six percent (6%) computed based on the
total gifts in excess of Two Hundred Fifty
Thousand Pesos (P250,000) exempt gift made
during the calendar year.
Q: What are the requisites of a valid
donation?
A:
1. Donative intent of the donor
2. Capacity of the donor
3. Delivery of the donated property
4. Acceptance of the donee
5. Donation must be in the proper form
a. Movable: orally or in writing if value is
equal to or less than P5,000.
Otherwise, it shall be in writing.
b. Immovable: must be made in a public
document.
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TAXATION LAW
Q: Y owns 1,000 shares of stock in A
Corporation, which has a fair market value
of PhP5Million. Y posted it for sale in all his
social media accounts for a period of one
month, and J‟s offer to purchase for
PhP4Million was the highest offer; thus Y
sold his shares of stock to J. The BIR
subsequently assessed Y Donors Tax of
PhP60,000, computed at 6% of the
PhP1Million difference between the FMV of
the shares and Y‟s selling price to J. Is the
BIR correct in assessing Y?
A: No, the BIR is not correct because the
transaction was arms-length.
Under Section 100 of the NIRC, as amended
by TRAIN Act, a sale, exchange, or other
transfer of property made in the ordinary
course of business (a transaction which is a
bona fide, at arm’s length, and free from any
donative intent) will be considered as made for
an adequate and full consideration in money
or money’s worth.
The sale transaction between Y and J is an
arms-length transaction and free from any
intent to donate, as shown by the fact that the
sale was made to the highest bidder. The
PhP4Million purchase price is thus considered
adequate and full consideration for the shares
of stock, and no Donors Tax is due on the
transaction.
Q: Y sold his beach house for PhP10Million
because he has been unable to use it often,
and the maintenance cost too high. The fair
market value of the property (highest of
zonal and FMV of assessor) is
PhP15Million. The BIR assessed Y for
donor‟s tax on the difference between his
selling price of PhP10Million and the FMV of
PhP15Million. Is the BIR correct?
A: No, the BIR is not correct because the sale
of real property held as capital asset is
expressly excluded from the coverage of
Section 100 of the NIRC on transfers for less
than adequate and full consideration.
Considering that the beach house fall under the
NIRC definition of capital asset, the sale for
less than FMV will not result in any donor’s tax
liability.
UP LAW BOC
Q: What is the treatment for a donation
made by husband and wife?
A: Husband and wife are considered as
separate and distinct taxpayers for donor’s tax
purposes. Hence their donor’s tax shall be
computed separately.
Q: What gifts are exempt from donor’s tax?
A:
1. Gifts made to or for the use of the National
Government or any entity created by any of
its agencies which is not conducted for
profit, or to any political subdivision of the
said Government. [Sec. 101 (A)(1), NIRC]
2. Gifts in favor of an educational and/or
charitable, religious, cultural or social
welfare corporation, institution, accredited
nongovernment organization, trust or
philanthropic organization or research
institution or organization: Provided not
more than 30% of said gifts will be used by
such donee for administration purposes.
[Sec. 101 (A)(2), NIRC]
3. Encumbrances on the property donated if
assumed by the donee in the deed of
donation.
4. Donations made to entities exempted
under special laws.
Q: What are the requisites for the exemption
from donor’s tax of election contributions?
A: The following are the requisites to be
exempt from donor’s tax:
1. The donee must be a candidate, political
party, or coalition of parties.
2. The donation must be reported to the
COMELEC.
3. The donation must be utilized/spent during
the campaign period as set forth by the
COMELEC.
However, if a foreign corporation gave a
donation to such, it is still subject to donor’s tax.
[RMC No. 38-18]
Q: What are the requisites for gifts made in
favor of an educational and/or charitable,
religious, cultural, or social welfare
corporation, institution, accredited
nongovernment organization (NGO), trust
or philanthropic organization, or research
institution or organization be exempt from
donor’s tax?
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PRE-WEEK TAXATION LAW
A: Gifts to the above organizations are exempt
if the following requisites are met:
1. Not more than 30% of said gifts shall be
used by such donee for administration
purposes.
2. The donee must be an accredited
institution
3. The donee is
a. incorporated as a non-stock entity
b. paying no dividends
c. governed by trustees
d. who receive no compensation, and
e. devoting all its income to the
accomplishment and promotion of the
purposes enumerated in its Articles of
Incorporation.
Q: What are the valuation rules in
determining the gross gifts?
1. If gift is personal property = FMV at the
time of donation [Sec. 102, NIRC]
2. If gift is real property = whichever is
HIGHER
a. FMV as determined by the CIR (Zonal
Value) or
b. FMV in the latest schedule of values
fixed by the provincial and city
assessor (MV per Tax Declaration)
[Sec. 102 in relation to Sec. 88(B),
NIRC]
3. If there is an improvement = construction
cost per building permit or the FMV based
on the latest tax declaration.
4. If listed stocks = Average of the highest
and lowest quotes on the valuation date
(date of gift) or day nearest to the valuation
date.
5. If unlisted stocks = for common shares,
book value; for preference shares, par
value. The valuation of unlisted shares
shall be exempt from the provisions of RR
No. 06-2013, as amended.
Q: What donee-entities are exempted from
donor’s tax under special laws?
A:
1. Rural Farm School
2. People’s Television Network, Incorporated
3. People’s Survival Fund
4. Aurora Pacific Economic Zone and
Freeport Authority
5. Girl Scouts of the Philippines
6. Philippine Red Cross
UP LAW BOC
7. Tubbataha Reefs Natural Park
8. National Commission for Culture and the
Arts
9. Philippine Normal University
10. University of the Philippines
11. National Water Quality Management Fund
12. Philippine Investors Commission
13. Ramon Magsaysay Award Foundation
14. Philippine-American Cultural Foundation
15. International Rice Research Institute
16. Task Force on Human Settlements
17. National Social Action Council
18. Aquaculture Department of the Southeast
Asian Fisheries Development Center
19. Development Academy of the Philippines
20. Integrated Bar of the Philippines
Q: What are the requisites in order for
donations to athletes is exempt from
donor’s tax?
A:
1. It is a nature of a prizes or award;
2. It is granted to athletes in local and
international sports tournaments and
competitions;
3. It was held in the Philippines or abroad; and
4. Sanctioned by their respective national
sports associations [R.A. 7549, sec. 1]
Q: When should the donor’s tax return be
filed?
A: The return must be filed within 30 days
after the date when the gift was made or
completed. The tax due thereon shall be paid
at the same time that the return is filed (pay-as-
you-file). [Sec. 103(B), NIRC]
Q: Who should file the donor’s tax return?
A: Any person who made a gift (whether direct
or indirect), is required to file under oath a
donor’s tax return in duplicate [Sec. 103(A),
NIRC] But under the BIR guidelines, the return
shall be filed in triplicate.
Q: Where to file the donor’s tax return and
pay the tax due?
A:
1. For Residents - Unless the CIR permits
otherwise, the return shall be filed and the
tax paid to:
a. AAB
b. Revenue District Officer
c. Revenue Collection Officer
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d. duly Authorized City or Municipal
Treasurer where the donor was
domiciled at the time of the transfer
[Sec. 103(B), NIRC]
2. For Non-residents
a. The Philippine Embassy or Consulate
in the country where he is domiciled at
the time of the transfer, or
b. Directly with the Office of the
Commissioner (i.e., Revenue District
Office No. 39 – South QC) [Sec.
103(B), NIRC; Sec. 15(B), RR 12-2018]
Notice of donation to donee institutions
duly accredited by the Philippine Council
for NGO Certification, Inc. (PCNC)
A: Requisites to be exempt from donor’s tax
and to claim full deduction:
1. Donor must give notice on every donation
worth at least P50,000
2. Notice is given to the RDO which has
jurisdiction over donor’s place of business
3. Notice must be given within 30 days after
receipt of the qualified done institution’s
Certificate of Donation
4. Certificate of Donation must be attached to
the Notice
Notice must state that not more than 30% of the
donation for the taxable year shall be used by
the qualified donee institution for administration
purposes [Sec. 15 (C), RR 12-2018 in relation
to Sec. 101(A)(2) and (B)(2)]
TAX REMEDIES
Q: Describe separately the procedures on
the legal remedies under the Tax Code
available to an aggrieved taxpayer both at
the administrative and judicial levels.
A: The legal remedies of an aggrieved
taxpayer under the Tax Code, both at the
administrative and judicial levels, may be
classified into those for assessment, collection
and refund.
The procedures for the administrative
remedies for assessment are as follows:
1. After receipt of the Pre-Assessment Notice,
he must within fifteen (15) days from
UP LAW BOC PRE-WEEK
receipt explain why no additional taxes
should be assessed against him.
2. If the Commissioner of Internal Revenue
issues an assessment notice, the taxpayer
must administratively protest or dispute the
assessment by filing a motion for
reconsideration or reinvestigation within
thirty (30) days from receipt of the notice of
assessment. (4th par., Sec. 228, NIRC of
1997)
3. Within sixty (60) days from filing of the
protest, the taxpayer shall submit all
relevant supporting documents.
The judicial remedies of an aggrieved taxpayer
relative to an assessment notice are as follows:
1. Where the Commissioner of Internal
Revenue has not acted on the taxpayer’s
protest within a period of one hundred
eighty (180) days from submission of all
relevant documents, then the taxpayer has
a period of thirty (30) days from the lapse
of said 180 days within which to interpose
a petition for review with the Court of Tax
Appeals.
2. Should the Commissioner deny the
taxpayer's protest, then he has a period of
thirty (30) days from receipt of said denial
within which to interpose a petition for
review with the Court of Tax Appeals.
In both cases the taxpayer must apply with the
Court of Tax Appeals for the issuance of an
injunctive writ to enjoin the Bureau of Internal
Revenue from collecting the disputed tax
during the pendency of the proceedings. The
adverse decision of the Court of Tax Appeals is
appealable to the Court of Appeals by means
of a petition for certiorari within a period of
fifteen (15) days from receipt of the adverse
decision, extendible for another period of
fifteen (15) days for compelling reasons, but
the extension is not to exceed a total of thirty
(30) days in all.
The adverse decision of the Court of Appeals
is appealable to the Supreme Court by means
of a petition for review on certiorari within a
period of fifteen (15) days from receipt of the
adverse decision of the Court of Appeals.
The employment by the Bureau of Internal
Revenue of any of the administrative remedies
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TAXATION LAW
for the collection of the tax like distraint, levy,
etc. may be administratively appealed by the
taxpayer to the Commissioner whose decision
is appealable to the Court of Tax Appeals
under other matter arising under the provisions
of the National Internal Revenue Code. The
judicial appeals starts with the Court of Tax
Appeals, and continues in the same manner as
shown above.
Should the Bureau of Internal Revenue decide
to utilize Its judicial tax remedies for collecting
the taxes by means of an ordinary suit filed with
the regular courts for the collection of a sum of
money, the taxpayer could oppose the same by
going up the ladder of judicial processes from
the Municipal Trial Court (as the case may be)
to the Regional Trial Court, to the Court of
Appeals, thence to the Supreme Court. The
remedies of an aggrieved taxpayer on a claim
for refund is to appeal the adverse decision of
the Commissioner to the CTA in the same
manner outlined above.
Q: What is an assessment notice?
A: An assessment notice is a formal notice to
the taxpayer stating that the amount thereon is
due as a tax and containing a demand for the
payment thereof. [Alhambra Cigar and
Cigarette Mfg. Co. v. Collector, 105 PR 1337
(1959); CIR v. Pascor Realty and Development
Corp., 309 SCRA 402 (1999)] To be valid, the
taxpayer must be informed in writing of the law
and the facts on which the assessment is
made.
Q: What are the requisites of a valid tax
assessment?
A: The requisites of a valid assessment are:
1. It must be made within the prescriptive
period to assess; [Section 203, NIRC]
2. There must be a preliminary assessment
previously issued, except in those
instances allowed by law; [Section 228,
NIRC]
3. The taxpayer must be informed in writing
about the law and facts on which the
assessment is based; [Section 228, NIRC];
and
4. It must be served upon the taxpayer or any
of his authorized representatives. [Estate of
Juliana Diezvda. De Gabriel v. CIR, 421
SCRA 266(2004)]
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Q: What is the prescriptive period for
assessment?
A: The right of the BIR to assess prescribes
after three years counted from the last day
prescribed by law for the filing of the income tax
returns when the said return is filed on time.
[Section 203, NIRC]
Q: What is the general rule on prescription
for assessment of taxes?
A: As a general rule, internal revenue taxes
shall be assessed within three (3) years after
the last day prescribed by law for the filing of
the return, and no proceeding in court without
assessment for the collection of such taxes
shall be begun after the expiration of such
period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the
three (3)-year period shall be counted from the
day the return was filed. For purposes of this
Section, a return filed before the last day
prescribed by law for the filing thereof shall be
considered as filed on such last day [NIRC,
Sec. 203].
Note: In other words, the assessment must be
made within 3 years from the date of actual
filing of the return or the last day for filing the
return whichever is later . (INGLES. Reviewer,
supra at 393)
Q: Who has the burden of proving that the
assessment is made before prescription?
A: The fact that the assessment notice was
mailed before prescription period sets in must
be proved with substantial evidence by the
Commissioner of Internal Revenue [Basilan
Estates, Inc. v. Commissioner of Internal
Revenue, G.R. No. L-22492, September 25,
1967].
Q: When is an assessment notice deemed
issued?
A: In determining if prescription to assess has
indeed set in, the important date to remember
is the date when the demand letter or notice is
released, mailed or sent by the Collector of
Internal Revenue to the taxpayer, and it is not
required that the notice be received by the
taxpayer [Basilan Estates, Inc. v.
Commissioner of Internal Revenue, G.R. No. L-
22492, September 25, 1967]. However, if the
taxpayer makes a direct denial of receipt of a
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TAXATION LAW
mailed demand letter, such denial shifts the
burden to the Government to prove that such
letter was indeed received by the taxpayer
[Republic v. Court of Appeals, G.R. No. L-
38549. April 30, 1987]
Q: What is the effect of filing an “amended”
return on the prescriptive period to assess?
A: In order that the filing of a return may serve
as the starting point of the period for making an
assessment, the return must be as substantial
complete as to include the needed details on
which the full assessment may be made
[Republic V. Marsman Dev’t Co., G.R. No. L-
18956. April 27, 1972] If the taxpayer files an
amended return which is substantially different
from the original return, the period of
prescription of the right to issue the deficiency
assessment should be counted from the filing
of the amended return, and not the original
return [Commissioner of Internal Revenue v.
Phoenix Assurance Co., G.R. No. L-19727,
May 20, 1965]
Q: What is the effect of filing a “wrong”
return on the prescriptive period to assess?
A: If the taxpayer files a wrong return, it is as
though he filed no return at all. In situations like
this, the 10-year prescriptive period will apply.
[Butuan Sawmill, Inc. v Court of Appeals, G.R.
No. L-19727, May 20, 1965].
Q: What happens if the day on which the
assessment is due to prescribe is a
Saturday?
A: If the date on which assessment is due to
prescribe falls on a Saturday, the following day
being a Sunday, it is understood that the
Government has until the next succeeding
business day or Monday within which to assess
the tax [Commissioner of Internal Revenue v.
Western Pacific Corp., G.R. No. L-18804, May
27, 1965].
Q: Distinguish a false return from a
fraudulent return.
A: The distinction between a false return and a
fraudulent return is that the first merely implies
a deviation from the truth or fact whether
intentional or not, whereas the second is
intentional and deceitful with the sole aim of
evading the correct tax due. [Aznar vs.
Commissioner, L-20569. August 23, 1974]
UP LAW BOC PRE-WEEK
Q: What are the differences between a
request for reconsideration and a request
for reinvestigation?
A:
1. A request for reinvestigation suspends the
running of the prescriptive period for
collection of taxes while a motion for
reconsideration does not.
2. A request for reinvestigation requires the
presentation of newly discovered or
additional evidence while a motion for
reconsideration does not.
3. The period of 60 days for submission of the
relevant supporting documents finds
application only to a request for
reinvestigation and not to a request for
reconsideration.
4. The failure of the Commissioner of Internal
Revenue to act on the request for
reconsideration after a period of 180 days
from filing thereof authorizes the taxpayer
to file a petition for review with the CTA
within a period of 30 days from the
expiration of such 180 day period while for
a request for reinvestigation the period is
the expiration of the 180 day period from
the submission of the complete supporting
documents.
Q: What is the period within which the
taxpayer may file a protest on the
assessment?
A: The taxpayer or its authorized
representative or tax agent may protest
administratively against the Formal Letter of
Demand and Final Assessment Notice
(FLD/FAN) within thirty (30) days from date of
receipt thereof [R.R. No. 18-13, Sec 3.1.3.]
Q. What are the kinds of protests?
A: A protest is a written request that comes in
either one of the following forms:
1. Request for reconsideration - a plea of
re-evaluation of an assessment on the
basis of existing records without need of
additional evidence; or
2. Request for reinvestigation - a plea of re-
evaluation of an assessment on the basis
of newy discovered of additional evidence
that a taxpayer intends to present in the
reinvestigation. [R.R. No. 18-13, Sec.
3.1.4, Par. 1].
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TAXATION LAW
Q: What matters should be stated in a
protest?
A: The taxpayer shall state in his protest the
following matters, otherwise his protest shall be
considered void and without force and effect:
1. The nature of protest whether
reconsideration or reinvestigation,
specifying newly discovered or additional
evidence he intends to present if it is a
request for reinvestigation.
2. The date of the assessment notice; and
3. The applicable law, rules and regulations,
or jurisprudence on which his protest is
based [R.R. No. 18-13, Sec. 3.1.4, Par. 2]
Q: Under what conditions may the
Commissioner of Internal Revenue be
authorized to compromise the payment of
any internal revenue tax? (2000 Bar)
A: The Commissioner of Internal Revenue may
be authorized to compromise the payment of
any internal revenue tax where:
1. A reasonable doubt as to the validity of the
claim against the taxpayer exists; or
2. The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.
Q: State and discuss briefly whether the
following cases may be compromised or
may not be compromised:
1. Delinquent accounts;
2. Cases under administrative protest,
after issuance of the final assessment
notice to the taxpayer, which are still
pending;
3. Criminal tax fraud cases;
4. Criminal violations already filed in
court;
5. Cases where final reports of
reinvestigation or reconsideration have
been issued resulting in the reduction of
the original assessment agreed to by
the taxpayer when he signed the
required agreement form.
A:
1. Delinquent accounts may be compromised
if either of the two conditions is present: (1)
the assessment is of doubtful validity, or (2)
the financial position of the taxpayer
demonstrates a clear inability to pay the
UP LAW BOC PRE-WEEK
tax. [Sec. 204(A), NIRC; Sec. 2 of Revenue
Regulations No. 30- 2002]
2. These may be compromised, provided that
it is premised upon doubtful validity of the
assessment or financial incapacity to pay.
3. These may not be compromised, so that
the taxpayer may not profit from his fraud,
thereby discouraging its commission.
4. These may not be compromised in order
that the taxpayer will not profit from his
criminal acts.
5. Cases where final reports of reinvestigation
or reconsideration have been issued
resulting in the reduction of the original
assessment agreed to by the taxpayer
when he signed the required agreement
form, cannot be compromised. By giving
his conformity to the revised assessment,
the taxpayer admits the validity of the
assessment and his capacity to pay the
same. [Sec. 2 of Revenue Regulations No.
30-2002]
Q: Under what conditions may the
Commissioner of Internal Revenue be
authorized to abate or cancel a tax liability?
A: The Commissioner of Internal Revenue may
abate or cancel a tax liability when:
1. The tax or any portion thereof appears to
be unjustly or excessively assessed; or
2. The administration and collection costs
involved do not justify the collection of the
amount due. [Sec. 204 (B). NIRC of 1997]
Q: State the conditions required by the Tax
Code before the Commissioner of Internal
Revenue could authorize the refund or
credit of taxes erroneously or illegally
received. (2005 Bar)
A: The conditions are:
1. A written claim for refund is filed by the
taxpayer with the Commissioner of Internal
Revenue. (NIRC);
2. The claim for refund must be a categorical
demand for reimbursement. [Bermejo v.
Collector of Internal Revenue, 87 Phil. 96
(1950)];
3. The claim for refund or tax credit must be
filed with the Commissioner, or the suit or
proceeding therefore must be commenced
in court within 2 years from date of payment
of the tax or penalty regardless of any
supervening cause (NIRC).
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TAXATION LAW
Q: State at least five (5) cases under the
exclusive appellate jurisdiction of the Court
of Tax Appeals (CTA) (2016 Bar)
A: Exclusive original or appellate jurisdiction to
review by appeal the following:
1. Decisions of the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue
taxes, fees or other charges, penalties in
relation thereto, or other matters arising
under the National Internal Revenue Code
or other laws administered by the Bureau
of Internal Revenue;
2. Inaction by the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue
taxes, fees or other charges, penalties in
relation thereto, or other matters arising
under the National Internal Revenue Code
or other laws administered by the Bureau
of Internal Revenue where the National
Internal Revenue Code or other applicable
law provides a specific period for action:
Provided, that in case of disputed
assessments, the inaction of the
Commissioner of Internal Revenue within
the one hundred eighty day-period under
Section 228 of the National Internal
Revenue Code shall be deemed a denial
for purposes of allowing the taxpayer to
appeal his case to the Court and does not
necessarily constitute a formal decision of
the Commissioner of Internal Revenue on
the tax case; Provided, further, that should
the taxpayer opt to await the final decision
of the Commissioner of Internal Revenue
on the disputed assessments beyond the
one hundred eighty day-period above
mentioned, the taxpayer may appeal such
final decision to the Court under Section 3
(a),Rule 8 of these Rules; and Provided,
still further, that in the case of claims for
refund of taxes erroneously or illegally
collected, the taxpayer must file a petition
for review with the Court prior to the
expiration of the two-year period under
Section 229 of the National Internal
Revenue Code.
3. Decisions, resolutions or orders of the
Regional Trial Courts in local tax cases
decided or resolved by them in the exercise
of their original jurisdiction;
UP LAW BOC PRE-WEEK
4. Decisions of the Commissioner of Customs
in cases involving liability for customs
duties,fees or other money charges, 3.
seizure, detention or release of property
affected, fines, forfeitures or other penalties
in relation thereto or other matters arising
under the Customs Law or other laws 4.
administered by the Bureau of Customs;
5. Decisions of the Secretary of Finance on
customs cases elevated to him
automatically for review from decisions of
the Commissioner of Customs adverse to 5.
the Government under Section 2325 of the
Tariff and Customs Code; and
6. Decisions of the Secretary of Trade and
Industry, in the case of nonagricultural
product, commodity or article, and the
Secretary of Agriculture, in the case of
agricultural product, commodity or article, 6.
involving dumping and countervailing
duties under Sections 301 and 302,
respectively, of the Tariff and Customs
Code, and safeguard measures under
Republic Act No. 8800, where either party
may appeal the decision to impose or not
to impose said duties. ”[RRCTA, Rule 4,
Sec. 3 (a)]
7.
The Court en banc shall exercise exclusive
appellate jurisdiction to review by appeal the
following:
1. Decisions or resolutions on motion for
reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive 8.
appellate jurisdiction over:
a. Cases arising from administrative
agencies – Bureau of Internal
Revenue, Bureau of Customs,
Department of Finance, Department of
Trade and Industry, Department of
Agriculture;
b. Local tax cases decided by the
Regional Trial Courts in the exercise of
their original jurisdiction; and
c. Tax collection cases decided by the
Regional Trial Court in the exercise of
their original jurisdiction involving final
and executory assessments for taxes,
fees, charges and penalties, where the
principal amount of taxes and penalties
claimed is less than one million pesos;
2. Decisions, resolutions or orders of the
Regional Trial Courts in local tax cases
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TAXATION LAW
decided or resolved by them in the exercise
of their appellate jurisdiction;
Decisions, resolutions or orders of the
Regional Trial Courts in tax collection
cases decided or resolved by them in the
exercise of their appellate jurisdiction;
Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in division in the exercise of its exclusive
original jurisdiction over tax collection
cases;
Decisions of the Central Board of
Assessment Appeals (CBAA) in the
exercise of its appellate jurisdiction over
cases involving the assessment and
taxation of real property originally decided
by the provincial or city board of
assessment appeals;
Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
original jurisdiction over cases involving
criminal offenses arising from violations of
the National Internal Revenue Code or the
Tariff and Customs Code and other laws
administered by the Bureau of Internal
Revenue or Bureau of Customs;
Decisions, resolutions or orders on motion
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
appellate jurisdiction over criminal offenses
mentioned in the preceding subparagraph;
and
Decisions, resolutions or orders of the
Regional Trial Courts in the exercise of
their appellate jurisdiction over criminal
offenses mentioned in subparagraph (f)
[RRCTA, Rule 4, Sec. 2]